Over the weekend, Russia seized three Ukrainian navy ships, sparking civil unrest in Ukraine, driving the tension between the two countries to new heights and increasing chatter around further western sanctions on Russia.
The country has form in coming to the markets shortly after drawing international condemnation — its last $4bn bond, sold in March, was sold a week after it was accused of the poisoning of spy Sergei Skripal in the UK.
A time when the world is looking at you and shaking its head is not typically the moment that you choose to come to the bond markets.
But Russia is not your typical EM issuer. Though bankers on the deal strong deny it and say that the deal had been in the works for weeks, those not on it say that this is about Russia showing strength, not about optimal timing or pricing.
In these bond market outings Russia is saying to Western authorities that it doesn’t care what they think, it doesn’t care what they threaten to do to punish them, investors still love them so they can do what they want.
And for all the chat about ESG at banks and funds, to some extent Russia is right.
But anyone with a rudimentary understanding of Russia in the bond markets can see that there are some plastic pecs underneath this show of muscle — if indeed that is what this is.
For every international investor that will want to buy this bond, another is scared witless about holding any debt from the country after a set of US sanctions in April sent Russian bond traders into a vortex of pain and suffering.
In April, Rusal bonds that had been printed only three months earlier lost half their value and several other corporates immediately saw their bonds slide 10-15 points. The new issue market was put on ice for seven months and has still not fully recovered. For those reasons, locals are expected to have anchored this deal.
The Russian sovereign has opted this time for the euro market, an expensive option versus the dollar market, but one that offers access to roughly the same investor base.
Bankers not on the deal say this is probably largely so that it could offer a hefty new issue concession without it being obvious that it has done so — there is only one short dated euro bond outstanding.
Russia is also perhaps scared of further sanctions, and that may be a motivation for printing now. After the Skripal poisoning, it printed bonds and sanctions were laid on it a few days later. Perhaps it is expecting the same arc and thinks now is the time to get its hands on the money.
The other way this exercise could be seen as a positive one for Russia would be if it acts as a market reopener for other issuers — an entity perhaps that has been threatened with direct US sanctions all year manages to get away a successful deal, for example.
But this door opening also seems unlikely, because for all the talk of sanctions on sovereign debt, the kind of sanctions it is facing are not the ones investors are petrified about.
If the US or the EU were to sanction Russian sovereign debt, the most likely scenario is prohibiting the sovereign from selling new issues into their jurisdictions, not banning investors from holding existing debt — and as a result the effect would be far less catastrophic for investors.
It would provide a squeeze on Russia without the immediate devastation internationally that banning the holding of existing Rusal debt caused in April. Other issuers are not so fortunate, and so for them Rusal-like sanctions are still a possibility.
Russia may be acting the strong man this week in the bond markets. But anyone with a knowledge of capital markets can sense that this bond market punch looks more like one set up for a Putin calendar shot.