Russian Bonds Rise as Sanctions Act as Shield From Brexit Shock

  • Russia looks like ‘safe haven’ for investors, Rosbank says
  • Stable oil prices underpin local debt market: Union Investment

Russian government bonds advanced on speculation foreign sanctions that have diminished the country’s ties to the European Union will protect it from Britain’s decision to leave, offsetting a falling oil price that wiped out earlier gains for the ruble.

Five-year government bonds rose, lowering yields 11 basis points by 5:58 p.m. The currency of the world’s biggest energy exporter was 0.2 percent lower against the dollar, having earlier traded 0.7 percent higher.

European Union and U.S. sanctions imposed two years ago over the Kremlin’s role in the Ukraine crisis sparked an exodus of foreign capital and closed foreign debt markets to Russia’s biggest state-controlled companies. That isolation has helped distance Russian assets from the chaos sweeping Europe.

“At a time when the European integration is breaking apart, a relatively isolated Russia looks like a safe haven for investors," said Yury Tulinov, head of research at Societe Generale SA’s Russian unit Rosbank PJSC. “It’s best to stay away from European assets due to the uncertainty and it’s worth looking at developing markets, where Russia and the ruble look quite attractive.”

Still, with Russia relying on oil and natural gas for about 60 percent of its export revenue, it remains sensitive to the impact of the so-called Brexit vote on energy prices. Brent was trading 2.3 percent lower at $47.30 a barrel, extending its almost 5 percent collapse on Friday amid concern the U.K. vote will hobble global growth. Russia’s benchmark stock gauge fell 2 percent, to 1,847.27.

“I don’t think the Russian local market is completely immune to current risk aversion, but as long as it doesn’t affect the oil price, local bonds will remain pretty stable,” Dmitri Barinov, a money manager at Union Investment Privatfonds GmbH in Frankfurt, said by e-mail.

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