Russian Eurobonds gain on heightened demand for risk
MOSCOW. July 1 (Interfax) - Most Russian Eurobond issues rose markedly in price in the past week on heightened demand for risk thanks to expectations of rate cuts by the world's central banks in light of Britain's vote to leave the EU.
US Treasuries rose only slightly in price, and sovereign spreads narrowed, except for Russia's benchmark 2030 bond.
Eurobond prices started to grow on Monday, even though aversion to risk was still quite high in the immediate aftermath of the Brexit vote. Demand strengthened on Tuesday and Wednesday, and Russian bonds not only recovered the losses they suffered on June 24, the day the Brexit vote was announced, but rose significantly higher, hitting new 2016 highs. Demand was strongest for long bonds, as investors hunted for yield. In addition, oil prices jumped 4%.
The market corrected down slightly on June 30, due to instability in the oil markets, but the price growth for Russian bonds resumed on July 1.
The 2030 bond rose 0.08% to 122.29% in the week as a whole. Spread between these and five-year UST widened 1 basis point to 140 bps.
The 2043 bond rose 5% in the week. The 2042 bond was up 5.2% - spread between these and UST with the same maturity narrowed 23 bps to 308 bps; the 2023 bond rose 2.5%, with spread narrowing 33 bps to 222 bps; 2020 grew 1.25% and 2018 rose 0.1%.
Little change is in store for the Russian Eurobond market in the week to come amid mixed signals from the world capital markets, the Interfax Center for Economic Analysis said.
The market could come under pressure due to the uncertainty over the process of Britain's exit from the European Union and how this affects the financial markets in general, and concerns about a slowdown in the global economy, however it could be buoyed by the loose monetary policy being pursued by the world's central banks and the prospect of a further rate cut by Russia's own central bank in the months to come.