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Article / 10 August 2016 at 9:30 GMT

Weekly Bond Update: Looking back at Russia

Head of Fixed Income Trading / Saxo Bank
  • Russian bonds managed to skirt around the edges of global turmoil
  • Relative economic stagnation has created fertile ground for bonds
  • Russia still has serious issues to contend with and problems remain unsolved

r Saxo's fixed income head Simon Fasdal steps in from the Moscow cold to offer hope for
those who'd like to take a bit of a punt on the Russian bonds market. Photo: Simon Fasdal

By Simon Fasdal

Despite further volatility in the rouble entering 2016, and a lower low in oil in January, Russian bonds were remarkably robust and managed to steer their own course early in 2016 from the general turmoil in equity markets and riskier assets.

The status today for the Russian economy is that rouble has stabilised, inflation is much lower in Russia from a staggering 15.6% in 2015 to the present 7.2.% year-on-year... which is not only good news but also have sent Russian yields lower.

More worryingly, oil prices are higher but not high enough long term to avoid a restructuring of the Russian economy. This will take hard work and cuts on budget spending, forcing Russia to find other means of income, than being highly dependent on commodity price fluctuations. Preferably oil should return to above $60/barrel, whcih would be really good news the Russian economy.

Oddly enough, Russia's relatively moribund condition underpinned by a triple whammy of modest growth, sideways equities and mixed data is a perfect breeding ground for emerging-market bonds. Low global core yields and EM assets have fed on central bank accomodative policies, led in particular by an ongoing highly accommodative US Federal Reserve.

The positive boost from the asset side has together with other factors brought Russian growth higher, with projections of entering positive territory early next year.

All in all, Russian assets are much better off, but the factors that can change the picture remain the same and many of these are unsolved. Please see the following video and article from November: Fasdal: The worst is over for Russia and here's why.

— Edited by Martin O'Rourke

Simon Fasdal is head of fixed income at Saxo Bank.


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