Russian bonds slide as Biden comment seen raising sanctions risk
- Biden said Russian President Vladimir Putin would "pay a price" for directing efforts to swing the 2020 US presidential election to Donald Trump, and soon.
- "If you were thinking the sanctions risk was a second-half (of the year) story, this is a bit of rude awakening," said Kiran Kowshik, EM FX Strategist at Lombard Odier.
LONDON: The risk of fresh US sanctions has rattled Russian debt after US President Joe Biden's hawkish comments appeared to raise the likelihood of more stringent curbs, and could even force the central bank's hand at this week's meeting.
Biden said Russian President Vladimir Putin would "pay a price" for directing efforts to swing the 2020 US presidential election to Donald Trump, and soon.
His comments follow Tuesday's American intelligence report, adding heft to allegations that some of Trump's top lieutenants had played into Moscow's hands by amplifying claims made against Biden.
"If you were thinking the sanctions risk was a second-half (of the year) story, this is a bit of rude awakening," said Kiran Kowshik, EM FX Strategist at Lombard Odier.
Russian sovereign Eurobonds maturing 2042 and beyond tumbled more than 2 cents to levels last seen nearly a year ago, when the pandemic and a Saudi-Russian oil price war roiled markets.
Rouble-denominated ten-year bond yields rose to 6.88%, the highest level since April 2020. while the rouble fell more than 1% to as low as 74 per dollar.
The sanctions threat is a familiar one for investors in Russia, but a series of measures introduced since the Kremlin's 2014 annexation of the Crimea have had limited effect.
"Let's see if Biden means what he says this time," said Tim Ash at BlueBay Asset Management. "Talk is cheap."
Sanctions so far have consisted of barring US financial institutions from participating in Russia's new sovereign debt issues over the Kremlin's alleged role in the 2018 poisoning of former spy Sergei Skripal in Britain.
Curbs earlier this month over the poisoning of opposition politician Alexei Navalny also barely moved the needle, as they were limited to seven senior Russian officials and 14 entities.
"The rise in sanctions risk is complicated further by the lack of clarity regarding the scope of sanctions - whether they will be limited to specific activities or sectors, whether they will apply to newly issued public debt or to existing debt," said Phoenix Kalen at Societe Generale.
Biden's comments and the market sell-off raises the question on how Russia's central bank might react. It was expected to hold interest rates steady, but Piotr Matys at Rabobank said a "very hawkish message" now looked possible.
He said that would "provide the rouble with a layer of insulation against rapidly escalating diplomatic tension between the White House and the Kremlin".