A new wave of U.S. and European sanctions against Russia has sparked a rally in that nation's stock market and its currency. Mr. Market, it seems, has no appetite for inflicting economic pain on President Vladimir Putin. Moreover, Russia's debt profile suggests any extension of the strictures to limit the country's access to international capital markets will prove similarly ineffective.
Russia's Micex Index is having its best day since the start of the month with a gain of about 2 percent, while the ruble has added about 0.5 percent against the dollar. It seems that restrictions imposed yesterday on share or bond sales by state-owned banks, combined with some export bans on energy and military equipment, were deemed by traders to be more of a slap than a punch.
Russia owes its bond creditors about $153 billion, according to data compiled by Bloomberg. Some $126 billion of the nation's debt, though, is denominated in rubles. A further $26 billion is dollar debt, with just $1 billion owed in euros. That makes Russia relatively immune to the need to raise foreign capital to refinance its debts:
Russia needs about $617 million this year to pay the interest on its dollar bonds. There are other dribbles of dollar-bond payments to make in the months ahead, but the big demands don't come until April 2015, when a $2 billion bond sold in 2010 comes due, and then in April 2017, when a second $2 billion bond matures. Russia's euro-denominated bond runs until September 2020.
Moreover, Russia has more than $472 billion in foreign exchange and gold reserves, though that nest egg has shrunk by about 12 percent since the beginning of last year:
The central bank did have to cancel today's planned domestic bond auction, with the finance ministry citing "unfavourable market conditions." That makes 10 auctions abandoned since the beginning of the year, with another four nixed after investors demanded higher yields than the ministry was willing to pay.
Still, Russia has raised about $3.5 billion through domestic bond sales this year, and has also tapped the state pension fund for a further $2.9 billion. Raising rubles won't be a problem; the finance ministry can always strong-arm domestic institutions into showing up at the auctions and accepting lower yields. So, just in case anyone was expecting Mr. Market to do any work for them in punishing Russia for its Ukrainian adventures, think again.
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