Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 13 Feb 2025 by Evgeny Gavrilenkov

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Market sentiment improved significantly in the past two weeks as investors started to speculate on a possibility of de-escalation in Ukraine. The conversation between Mr. Trump and Mr. Putin was considered an important indicator of the high likelihood of this scenario. As a result, the ruble appreciated by about 4%. Moreover, some market participants began to speculate that some restrictions/sanctions could be lifted implying that some international investors could be interested in Russian assets and might consider re-coming back to the country’s financial markets. These speculations fueled demand on both equities and bonds as well as the ruble appreciation. The bond market performed well due to the above reasons. An increased demand allowed Minfin to place OFZs worth R224.8 bln and the yield curve moved down by 30 bps. We expect the government to use the momentum and offer more papers on the primary market, especially amid growing expenditures. Note that the total amount of the borrowing program for 2025 is R4.8 trln, which looks ambitious. This activity may prevent further rapid yield compression. However, some re-pricing of all Russian assets is possible. As federal budget expenditures soared in January and the government allocated 11.5% of its annually targeted expenditures last month, inflation remained high in recent weeks. Rosstat reported that in the seven days ending on February 10, inflation w-o-w was 0.23%. The MTD and YTD tallies moved to 0.3% and 1.53% respectively. The official January inflation print will be published on January 14, but based on weekly preliminary data it could be close to 1.2% m-o-m and 9.8% y-o-y. Persistently high inflation and the hi...