Dhe image of the cliff is appropriate. If you look at the price development of Russian corporate bonds, you can determine the time of Russia’s invasion of Ukraine fairly precisely without having to look at the timeline. The price of a five-year bond issued by the state energy supplier Gazprom due in 2023 fell from around 93.1 points to 38.4 points on February 23 this year and on March 1. Subsequently, trading with it on the Swiss stock exchange Six was suspended. The next price determination did not happen again until March 30th. The bond is now trading at 33.0 points.
Certainly a bargain from a yield point of view. The paper has an interest coupon of 1.45 percent, and the yield is currently 336 percent. On March 1, it rose to 162 percent. Actually a shrill alarm signal for every trader. In typical buy-the-dip fashion, however, some market participants specialize in such cases. At the beginning of March, news circulated that the American investment banks Goldman Sachs and JP Morgan were buying Russian government and corporate debt together for their clients. As recently as April, Goldman Sachs was still adamant that weakness in Russian securities was technical.
Companies remain stable – for now
The statement can be interpreted in different ways. Example Gazprom: Russian gas and oil are still needed and bought. The daily reports on the capacity utilization of the Nord Stream 1 gas pipeline bear witness to this. Unlike Germany, which has now recognized the problem of its dependency and probably only wants to depend on this drip temporarily, other countries are constantly buying Russia’s energy sources. China, India and Brazil are among the best customers. Especially after the price of Russian oil and gas fell due to falling demand from the West.
Gazprom’s earnings outlook has been revised down due to Western sanctions, but money continues to flow. So far there has been no report that the group has missed an interest payment. The fact that Russian securities are unpopular has to do with Russia’s (justified) condemnation of its actions in Ukraine, but not with the solvency of its companies.
From this first technical difficulty follows a second: sanctions and Russia’s attempt to retaliate against them. While Western countries, such as the United States, are suspending trading in Russian securities, Russia allows its companies to pay off debts in rubles, even if they were originally issued in a different currency. This would effectively be a breach of contract, followed by the company’s classification as technically insolvent.
In the short term, investors who bought Russian corporate bonds through the big American banks are getting their bets on their feet. In May, American parliamentarians even asked the banks for a list of the names of these investors. Viewed soberly, the banks seem to be right at first: The risk that is being taken here is of a political and technical nature. But to simply hope that these problems and the associated risk, given Russia’s warlike behavior, will at some point be resolved with pleasure is naive to the point of brazen.
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