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Russia’s recognition of the Donetsk and Lugansk People’s Republics (DLPR) sparked global outrage and triggered the first tranche of sanctions. Although Russian markets are closed for a public holiday, offshore trading shows continued selling of Russian USD debt.
There was no exchange of local currency OFZ Russian Sovereign Bonds today, but the more liquid $2047 Eurobond sold off again, with yields even higher by 50 basis points near 6.00%. In light of new bans on trading Russian sovereign bonds in the secondary market, for new debt issued from March 1, investors will be watching the performance of OFZs closely when they reopen tomorrow.
Prior to the announcement of the sovereign debt sanction, non-residents held 2.8 tr RUB ($35.3 billion), or about 18% of the overall OFZ market. Russia is currently experiencing the fifth consecutive month of foreign portfolio outflows from OFZ.
the ruble initially took the new sanctions in stride, but remains vulnerable.
Merchandise factored in a fairly large risk premium as tensions between Russia and Ukraine escalate. This is no surprise, given how powerful Russia is when it comes to raw materials. This is particularly the case for crude oil, natural gas, palladium, platinum, nickel, aluminum and wheat. The fear was that any sanctions from the West could potentially disrupt export flows for these commodities, at a time when a number of these markets are already stretched and trading at multi-year highs.
However, the sanctions announced so far are expected to have little to no impact on most of these commodities. Therefore, it is not surprising that we have seen the markets for oil and certain metals (aluminum and nickel) trading lower from their recent highs. But, given that there are still many uncertainties as to how the situation will develop, we expect the markets to continue to price in a fairly large risk premium, especially as the current tensions on a a number of these markets make them more vulnerable to supply. shocks.