Russia Default Risk Falls to Lowest Since August Crimea Flare-Up

Updated on
  • Rebel cease-fire violations fell to 3-month low, Ukraine says
  • Unless oil recovers, RUBUSD will be at ~65.1653: Rabobank

The cost of insuring Russian debt using credit-default swaps fell to a three-week low as tensions with Ukraine eased, offering relief from mounting political risk that had weighed on assets last month.

Five-year CDS contracts declined seven basis points this week to 219, the lowest since Aug. 10 when Russian President Vladimir Putin said he would retaliate against the deaths of two Russian servicemen in Crimea and accused Ukraine of “terror” tactics in the Black Sea peninsula Russia annexed in March 2014. Brent crude fell 0.4 percent to $46.86 a barrel. The ruble gained 0.1 percent to 65.2225 against the dollar by 2:15 p.m. in Moscow.

Investors welcomed the diminished political strife and signs Russia is seeking to end its isolation under U.S. and European sanctions over Ukraine, said Piotr Matys, a currency strategist at Rabobank in London. Rebel cease-fire violations fell to a three-month low over the past 24 hours, according to a statement by the Ukrainian military press office on Facebook Thursday.

“Given that tension between Ukraine and Russia escalated recently, any signs that it is easing would be positive for the ruble,” Matys said. Still, unless there is a "convincing" recovery in oil prices, the ruble may continue to trade at about 65.1653 per dollar, he said.

The Micex Index added 0.2 percent to 1,975.53. Five-year generic bonds climbed, sinking the yield three basis points to 8.51 percent.