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Russian Markets in Free Fall as West Sanctions CBR, Offshore RUB Surges 30%

  • Local & USD rates remain unch this morning, but are likely to see extensive losses following the West’s moves to sanction the CBR’s reserves.
  • Credit default swaps are also likely to retrace sharply from the -363bp gain on Friday as markets acclimated to the invasion and sanctions. USD bonds have been harder hit in the last few weeks vs OFZs and may do so again today.
  • USD/RUB is broadly expected to come under significant selling pressure at the open on the back of a Western assault on the CBR’s reserves and its access to SWIFT – threatening to bring “Fortress Russia” tumbling down. The offshore rouble surged as much as 30% with spreads widening almost 8x on evaporating liquidity – sending pricec action well above the 100 handle in USD/RUB .
  • Threats to ~40% of its $630bn in reserves held overseas is a major setback to Russia’s greatest tool for mitigating the impact of sanctions, and signifies a major escalation from the West that could cause major damage to Russia’s economy in the near- and longer-term.
  • Although the details have yet to be solidified, markets will be notably concerned and price in an even wide risk premium. Moreover, Putin escalated his military narrative over the weekend by placing the nuclear deterrence forces on high alert as Russia troops face greater difficulties in Ukraine than Putin likely anticipated.
  • Fighting continued unabated around Kyiv, and in key cities of Kharkiv, Mariupol and Kherson as Ukrainian forces continue to hold their ground. Pledges to send weapons, missiles and fighter jets from the West may also see the conflict become more protracted, while also boosting Russia-NATO tensions – which should be monitored closely for signs of a broadening proxy-conflict.
  • Markets will be watching Zelensky’s meeting with Russian officials this morning for signs of a ceasefire, although with sanctions already having been imposed it seems unlikely that Russia will look to de-escalate.
MNI London Bureau | +44 020-3983-7894 |

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