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Russian bond spreads jump on Cyprus mess
The spreads of Russia’s bonds jumped on Monday as investors saw the terms of and reaction to a bailout package for Cyprus
Not only has the situation brought the eurozone’s woes to the fore once again — and is risking a contagion effect to the emerging markets — but Russia’s banks and corporates have billions of dollars of direct exposure to the country.
Because of that, Russia may be encouraged to contribute to the bail-out — either via Russian banks buying into local lenders and also bilateral loans from Moscow. The Russian government last gave Cyprus a €2.5bn loan in 2011.
Despite all of this though, bankers are saying that there is still appetite for Russian debt and that the problems would not prevent strong issuers from the country tapping the market.
The €10bn bailout for Cyprus, agreed with the EU and IMF on Saturday, includes bank depositors in the country paying what is officially described as a one-off levy to help finance the bail-out.
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Talks are continuing today on parliamentary wrangling over the bailout, and a vote is now not expected until Tuesday.
The possibility remains that the 6.75% levy on deposits below €100,000 may be lowered, which could involve an increase in the 9.9% levy on deposits above that level.
According to Moody’s, Russian banks’ loans to Cypriot-based Russian companies totalled $30 billion-$40 billion at the end of 2012 and Russian corporate deposits in Cyprus totalled an estimated $19bn at the end of August.
The concern around Russia is not just around the potential haircut that depositors would have to take on funds in Cypriot accounts but also how long the situation could take to be resolved.
“If this thing drags on, for a week or so, with the Cypriot parliament blocking the bail-out, and deposits stay frozen, this is going to impact on the use of Cyrpus as a transactions hub for Russian/Ukrainian corps,” said Tim Ash, an economist at Standard Bank.
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