26 November 2020 by jbchevrel
Russia CDS (80bp on the 5y) is now back to where it was in the aftermath of the September 2019 roll. The tights followed around 60bp in early January 2020. The widest close was 300bp this spring. Despite being hurt quite badly by COVID-19, Russia’s fiscal policy and monetary policy remained reasonable. Russia is the place in Europe which still offers non-negative real rates and who refrained from doing QE. The fact that nonresidents holding in local currency bonds (OFZ) was just 24% as of October adds to the argument that inflows have some room in that space. As far as Eurobonds, the debt division chief in the Ministry of Finance announced that Russia would issue not more than $3B of international debt, next year. Just $600M of intl debt is maturing next year and an average $2B/year the three following years. Of the total $38.5B international debt that Russia has contracted, about $5B is EUR, rest is USD. Despite low oil prices, the current account balance has been resilient thus far in 2020. Russian companies break even at below $20 per barrel. Russia current account surplus is expected to be in the area of 1% of GDP next year. It is significantly lower than what it was in 2019 (4% of GDP) but is exposed to a potential reflation in base commodities (not just energy but also metals) driven by lower $ and Fiscal Stimulus (partly in the form of infrastructure projects) across DMs. Base commodities represent close to 80% of Russian exports. Finally, the CBR’s (Russian central bank) international reserves are ample, and stand close to $600B currently, not eroded by FX interventions this year, contrary to some other EMs. For reference these were roughly $350B just five years ago. Anecdotally, the CBR increased their gold reserves every month of 2017, 2018 and 2019. In 2016, Russia’s gold reserves value was below $50B. The value of these has close to tripled, since then (gold price appreciation + gold purchases).