Several factors are buoying Russian bond trading and demand for new issues at the moment.
After months of refusing to negotiate, Russia seems to have this week softened its stance over the $3bn Ukraine bond it holds, saying it is prepared to change the payment terms. The new proposed terms would give the Ukrainian government until 2018 to settle the debt, which still officially falls due next month.
There is also some talk of how the Paris attacks may transform US and European relations with Russia, with reports from both sides that foreign policy differences are narrowing.
Russian President Vladimir Putin and his US counterpart Barack Obama have been discussing ways to confront Islamic State at the G-20 meeting, with Obama noting the importance of Russia’s military efforts in Syria. UK prime minister David Cameron has been quoted as saying that while Britain had “big disagreements” with Moscow over Ukraine and Syria, “where we do agree with each other we should work together”.
The market seems to think that if Russia can unite with the west on Syria, this may lead to a softening of sanctions.
Low bond supply from Russia this year is also helping the atmosphere in the market — big buybacks from the likes of VTB, Fesco, Home Credit and Finance Bank, Russian Standard Bank, Tinkoff Credit Systems and Severstal have taken place this year, cutting investor exposure to the country. Bonds are trading more tighter than the geopolitical or macroeconomic conditions in Russia suggest because of the technical shortage.
Alfa Bankheld a global conference call on Monday for what could be only the second Russian financial institution bond this year and is still monitoring the markets in the hope of printing. It is right try to ignore the usual end of year malaise and try to get the deal done this week rather than waiting for next year.
This month could be a turning point for relations between the west and Russia, or simply a good fortnight of trading. It is impossible to call the long term effects, but it is clear is that if you are a Russian issuer with a funding need, there have been worse weeks to approach the market.