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Bank of America Cuts Russia Bond Rating on Ukraine

Bank of America Corp. cut its recommendation on Russia’s foreign debt on concern that an escalation of the crisis in Ukraine would lead to further sanctions.

Russian external bonds, which had been raised to overweight on March 24 by Bank of America, were downgraded to marketweight today. The yield on Russia’s 2030 dollar bond rose 20 basis points, or 0.2 percentage point, to 4.69 percent at 12:34 p.m. in New York.

Pro-Russian separatists seized administration buildings in Ukraine’s east as the government in Kiev accused President Vladimir Putin of stoking unrest. Protesters with Russian flags stormed offices in the cities of Luhansk and Donetsk, where demonstrators called for a referendum to join Russia and for the boycott of May 25 presidential elections. Ukrainian Prime Minister Arseniy Yatsenyuk said today that Russia was trying to split his nation.

“We think that market can easily perceive such development as escalation of Ukrainian crisis,” Vladimir Osakovskiy, chief economist for Russia and the Commonwealth of Independent States at Bank of America Merrill Lynch, wrote in a note today. Russia’s open involvement in Eastern Ukraine “will most likely be unacceptable for the U.S. and EU, potentially triggering costly economic sanctions against Russia.”

The U.S. and the European Union have slapped sanctions on members of Putin’s inner circle and urged his government to pull back its troops in the worst standoff since the Cold War. They have said sanctions may intensify if Russia tries to destabilize Ukraine by using trade and other measures.

The yield on the Russian government’s April 2020 dollar bond rose to 4.15 percent today from 3.68 percent on February 28 when Ukrainian acting President Oleksandr Turchynov said Russia invaded Ukraine’s Crimea and gunmen seized the parliament of the region.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net; Tal Barak Harif at tbarak@bloomberg.net Rita Nazareth

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