President Vladimir Putin’s annexation of Crimea is damaging Russia’s creditworthiness, making some of Europe’s most indebted countries look better by comparison.
The CHART OF THE DAY shows that for the first time in four years, the cost of protecting against a default by the world’s biggest energy-exporting nation is higher than for Portugal, which needed an international bailout just three years ago. The yield on Russia’s ruble bonds maturing in August 2023 was at 9.15 percent today, versus 3.93 percent on Portuguese securities due in October 2023.
“Russia is a risky story -- there are clear signs of capital flight,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $20 billion. “A lot of money is flowing out of emerging-market bonds, and it seems to flow into European markets, especially peripheral bonds. Russians themselves are trying to put their money out of the country and also international investors are drawing back because of the political risk.”
Russia’s worst standoff with the U.S. and its allies since the Cold War, after Putin’s troops occupied Crimea, is threatening to tip the economy into recession. Even before sanctions were imposed on the nation, Russia was facing the slowest growth since 2009, with the $2 trillion economy expanding 1.3 percent in 2013. Investors pulled $5.5 billion from Russian equities and bonds this year through March 20, according to data compiled by EPFR Global.
The yield on Portugal’s bonds due in February 2024 fell to 3.98 percent today. That’s the first time since 2010 that the benchmark 10-year yield has dropped below 4 percent, having tumbled from a record 18.3 percent in January 2012. The nation is seeking to emulate Ireland and regain full access to debt markets with the end of its 78 billion-euro ($107 billion) rescue program approaching in May.