Russian market showed resilience to announced new sanctions

The July issue of the Financial Market Risks Review notes that the Russian market showed resilience when new sanctions were announced despite the initial uncertainty with regard to their parameters. The announcement published on 1 August caused insignificant short-term growth in sovereign bond yields. However, in the next few days, this growth was largely reversed.

From 1 July to 6 August 2019, the share of non-residents in the OFZ market decreased to 29.2%, which was caused mainly by the one-off growth in OFZ placement (to support VEB). At the same time, net OFZ sales by non-residents totalled 19 billion rubles, indicating a moderate reaction to the current situation.

Russian banks noticeably increased their funds placed with non-resident banks by August 2019. The accumulated foreign currency cushion (18 billion US dollars) can be used in case of increased financial market volatility. Declining US dollar-denominated exports to the EU and BRICS countries in the first quarter of 2019 led to a higher share of euro transactions in the domestic FX market.

The trend towards lower interest rates in the Russian market is accompanied by the growth of investment in higher yield corporate bonds (mostly those of credit institutions) and the narrowing spread of interest rates on household deposits offered by banks with different ownership structure.