Article / 03 December 2014 at 11:00 GMT

Weekly Bond Update: Oil, sanctions dragging down Russia

Fixed Income trader / Saxo Bank
Denmark
  • Russia's economy tanking as deputy minister forecasts 0.8% contraction for 2015
  • VTB Bank chairman admits there is "some panic" in the market
  • Russian banking bonds under severe pressure as headwinds gather pace

By Michael Boye

The falling oil prices and sanctions from the US and Europe is severely affecting the Russian economy. On Tuesday, Russia’s deputy economy minister updated the 2015 growth forecast to a 0.8% contraction, from a previous forecast of 1.2% growth. 

The Russian ruble dropped another 4.5% against the US dollar, which is the biggest single-day drop since the country defaulted on its internal debt in 1998.

The crisis has led several of the country's largest state-controlled banks to seek government help. The country's largest bank, Sberbank, last week cut its earnings forecast, while both Gazprombank and VTB Bank have sought capital aid from the government. 

The chairman of the latter remarkably said this week that there was "some panic" in the Russian banking market.

Russia
 
Russian bonds have seen some heavy pressure and trades with great volatility. Sberbank's subordinated USD bond maturing in 2022 currently trades at a price of around 80 with a yield to maturity of 8.7%. VTB Bank's subordinated and perpetual USD bond with the first call option in 2022 dropped significantly to a level around 73. 

This bond was traded at 90 in early November and above 100 in the summer.

v
 Smog gathers over Moscow's Ustinsky Bridge as Russia faces up to a seemingly ever-worsening crisis that could spill over into the European bond market. Photo: Thinkstock

-- Edited by Martin O'Rourke

Michael Boye is a trader on the Fixed Income Desk at social trading leader Saxo Bank.


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