Russian Investor Starved of Opportunity Seeks Brazil Bond Bounce

  • Local money manager Aricapital looks for other options in EM
  • Spread between Petrobras and Gazprom notes reached 590 bps

Russian investors are looking to Brazil’s battered Eurobonds as a dearth of new issuance at home forces them to seek out higher-yielding securities in other emerging markets.

“We went to Brazil in the second half of September and are seriously thinking about buying,” Alexey Tretyakov, a money manager at Aricapital Asset Management in Moscow, said Friday by e-mail.

Brazil’s sovereign dollar bonds have handed investors the worst returns in emerging markets this year after Zambia and Ecuador, data compiled by Bloomberg show, amid a political crisis that prompted Standard & Poor’s to cut the nation to junk last month. At the same time that the turmoil is driving up Brazilian yields, Western sanctions imposed on Russia for its role in Ukraine have a choke-hold on local companies’ foreign debt sales, shrinking the pool of securities available for investment.

Petroleo Brasileiro SA’s bonds tumbled last month, driving the yield on the debt due in March 2024 to a record 12.88 percent. The premium on the notes compared with March 2022 bonds of Russia’s Gazprom PJSC stood at 3.47 percentage points on Tuesday, more than six times what it was at the start of August. The spread widened to a record 5.9 percentage points on Sept. 28.

Vale, Norilsk

Tretyakov, who helps oversees 580 million rubles ($8.9 million), said he’s already bought a “small” portion of Brazilian mining company Vale SA’s bonds.

Vale’s January 2022 bonds yield 92 basis points more than the October 2020 notes of Russia’s biggest mining company, Norilsk Nickel PJSC. That compares with a 21 basis-point discount at the end of August.

Evgeny Smirnov at Aton Asset Management, whose Eurobond fund beat all 60 rivals that focus on Russia this year, also favors Brazilian assets. In an interview last month he said he’s looking at the country’s corporate bonds after the downgrade. Brazil’s average company bond yields surged to a seven-year high of 10.91 percent on Sept. 29 and was at 10.14 percent on Monday, according to a JPMorgan Chase & Co. index.

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