Looking at Russian Financial Markets post its Invasion of Ukraine and Sanctions

Thread by Founder Jens Nordvig:

So what is going on in Russian financial markets after its invasion of Ukraine and subsequent sanctions (as well as capital flight and human resources flight)?

Here are some charts in a thread (I will try to do other brief Russia threads in coming days).

First the Russian Ruble (RUB):

The currency (number of Rubles you have to pay per USD) has gone up almost 50%. But the question is if you can actually get any at all and at what price. See Reuters - Russia imposes 30% commission on forex purchases by individual brokers.

Turning to Russian bond markets, we have seen dramatic declines in Russian bonds (USD bonds), as market participants internationally doubt that Russia can make hard currency coupon payments in coming months (or want to).

The official policy on the matter is in flux, however. See WSJ - Russian Central Bank Backtracks From Putin's Capital Controls Decree.

Turning to the local bond market (the market in RUB, mostly for local investors), the price of bonds has also gone down, but for different reasons, and somewhat less in magnitude.

(here a two year RUB bond, and note that pricing is not fully up-to-date, as market is not operating).

The local market is less about default risk (the expectation is that locals will be paid coupons), but more about higher inflation rates and the need for higher interest rates, as the central bank fights capital flight.

Here the Central Bank Policy rate is show, doubled!

The central bank can print RUB, so it (the 'treasury') does not have to default (if it does not want to). That is the difference between external debt in USD, and local debt in RUB.

It does not protect against inflation, however, for the locals owning these bonds.

And then there are the Russian stocks that are traded outside of Moscow, where we can actually see a price (since the Moscow market is closed)

The most prominent bank is Sberbank, and it is down >99% (and now suspended in London trading too)

I will leave it at that. I will try to comment on energy/trade issues in a separate thread over the weekend.

These are not normal times. Far from it. For Russian assets, for Europe, and more generally.