Russia is said to plan Eurobond this month as yields climb

Russia is preparing to sell Eurobonds as soon as this month, according to three people familiar with the matter, as the government seeks to capitalise on a credit upgrade before US Federal Reserve rate hikes spur borrowing costs.Finance Minister Anton Siluanov has said Russia is aiming to sell $3bn of debt this year in a single tranche. S&P Global Ratings raised the nation’s foreign debt out of junk last month, making its Eurobonds eligible for inclusion in global investment-grade bond indexes. While the premium on the country’s bonds over US Treasuries is near a record low, yields are close to the highest since July as the Fed’s March 21 rates decision approaches.The Finance Ministry didn’t immediately respond to a request for comment. The three people acquainted with the deal asked not to be named because the details aren’t yet public.After issuing foreign bonds in the second quarter for the past two years, geopolitical and global market factors are prompting Russia to bring forward its latest sale. Emerging-market assets tumbled last week after comments by the Fed chair spurred bets for four interest-rate increases in 2018 and US Treasury Secretary Steven Mnuchin warned on February 27 that new sanctions targeting Russia could be announced in the coming 30 days.“It’s best for Russia to borrow while market conditions are benign,” said Yannick Naud, head of fixed income at Banque Audi in Geneva. “A bird in the hand is worth two in the bush.”Russia’s Eurobond maturing in September 2023 was little changed on Tuesday with the yield at 3.66%. The nation’s five-year credit default swaps fell two basis points to 105 after retreating to the lowest since July 2008 last month.The Finance Ministry is prioritising local investors this year after President Vladimir Putin announced that the sale will help wealthy Russians repatriate capital amid growing concerns about Western sanctions. State-run VTB Capital has been hired as the sole organiser for the offering and finance minister Siluanov said at the start of the month a date for the placement had been chosen, without elaborating.“The Finance Ministry is likely to issue sooner rather than later,” said Elina Ribakova, head of EMEA research at Deutsche Bank AG in London. “Market conditions for Russia remain favourable, boosted by the recent rating upgrade.”As President Vladimir Putin prepares for March 18 elections, S&P’s upgrade on February 23 was a rare vote of approval from an international organisation since Russia’s relations with the US and Europe soured four years ago. The agency cited the government’s “prudent policy” as the reason for the rating boost.Investors were relieved to hear Mnuchin specify in February that the US wouldn’t be pursuing sanctions against Russian government debt, a potentially painful measure that was raised last year. The Treasury concluded that such a step could destabilise global markets in a report last month.“Many asset managers favour emerging markets now – there’s a lot of appetite for such a new issue and the timing is perfect,” said Eric Vanraes, who oversees a bond fund from Geneva for EI Sturdza Investment Funds, which has about $3bn under management. “Fed behaviour is predictable for March 21, but the risk is a too-hawkish tone for the rest of the year.”