‘Russia ready to buy own debt if sanctions spark market crash’

Russia is ready to take the emergency step of buying its own rouble debt if a new wave of US sanctions threatens to upend the market.“In a very stressful scenario when we see the conditions of a market failure” both “the central bank and the government have the tools to intervene on the open market to cushion the adjustment period,” Deputy Finance Minister Vladimir Kolychev said in a Bloomberg TV interview.A co-ordinated response would be a first since the Finance Ministry and the Bank of Russia teamed up early in 2015 to support the rouble at the height of the country’s currency crisis. As turmoil spreads across emerging markets, Russian assets have been battered by harsh US sanctions in April and a “nuclear” option proposed in Congress that could target sovereign debt.Foreign holdings of sovereign rouble debt have since declined to the lowest since 2016.The securities have handed investors a 12% loss since July, the fourth-worst performance among Russia’s peers tracked by Bloomberg.The rouble stabilised against the dollar yesterday, near the weakest level since April 2016, while yields on 10-year debt rose five basis points to 8.94%. The share of non-residents in Russia’s rouble-denominated debt has fallen to 26%-27%, according to Kolychev.That’s down from a peak of 34.5% in March and 28% in July, central bank data show.Despite the threat of the harshest US measures to date, officials say Russia is prepared for the worst.At a forum sponsored by the ministry in Moscow on Thursday, Kolychev and colleagues from the central bank, Economy Ministry and a big state bank downplayed the risks from painful new measures, arguing that Russia’s in a strong position to weather any further instability.The US Senate is set to debate new sanctions to punish the Kremlin for alleged election meddling, including a raft of measures dubbed “the bill from hell” that could bar Americans from buying new issues of Russian sovereign debt and ban the largest state banks from using dollars.If US actions forced foreign investors to sell Russian debt, Kolychev said in the interview that the first move would be to halt new issuance to keep pressure from building in the market.The Finance Ministry cancelled a bond auction on Wednesday, the second time in recent weeks, amid rising borrowing costs.In another sign of increasing volatility, the governor of the Bank of Russia said policy makers at next week’s meeting will consider the first increase of the key interest rate since 2014 as inflationary risks grow due to the rouble’s weakness.The ministry will decide about buying back domestic bonds if volatility is several times higher than normal, among factors such as demand and liquidity, and had no limit on volumes,Kolychev said yesterday.There’s been no discussion of support for Eurobonds but Russia could stabilise that market if needed, he said.Even if the US targets Russia’s biggest state lenders, such as Sberbank PJSC, private banks can continue to carry out dollar transactions, Kolychev said in the interview.And the government can “cushion short-term volatility and provide the necessary liquidity in local currency and foreign currency to continue to process transactions in international trade, he said.”The government has 3tn roubles ($44bn) of liquid assets, including deposits with lenders and funds in central bank accounts, enough to last to the end of 2019,Kolychev said.The Finance Ministry may not sell the full amount of debt in its borrowing plan for the year if the market conditions remain unfavourable, he said during the interview.“What’s important is we have buffers in terms of cash liquidity that could allow us to be flexible,” Kolychev said.“We don’t actually have to borrow into a stressful environment.”