Those business journalists at Bloomberg ($) have noticed that some investors are betting that Russian debt – a market frozen since the February 2022 invasion of Ukraine – could “thaw out” if there’s a ceasefire/peace deal. But this is a gamble that has potential to go very wrong.
The transactions — revealed here for the first time — are among the clearest indications yet that investors are quietly betting that US President Donald Trump’s overtures to Moscow for a deal to end the war in Ukraine will eventually translate into Russia’s return to the global financial markets. The buyers are wagering that the deeply discounted securities could soar in value if the sanctions imposed on Russia after its invasion of Ukraine in 2022 are lifted.
Money managers, too, say they are receiving approaches from Wall Street sales teams gauging their interest in making bets on the ruble through non-deliverable forwards — derivatives that because they don’t involve a physical Russian asset or individual person aren’t subject to sanctions. The Russian currency has gained 13 percent against the dollar since the start of the year, according to Bank of Russia data.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among banks that have been acting as brokers to facilitate growing investor demand for ways to trade Russian-related assets, people familiar with the matter said.
Given the potential for things to go awry, such as if Mr Putin treats a pause in the fighting to re-group and launch another assault, I’d want to be in close touch with any investment managers running my savings plans to be sure that Russian debt, assuming it was ever to be considered in a portfolio, were to take up more than a few percentage points of my total holdings. In fact, I’d want to insist that Russian debt, even after any sort of diplomatic move (regardless of how it is arrived at), is out of bounds.
Leaving 300 Billion Dollars in an electronic registry in Belgium was one of Mr Putin’s many absurd decisions.
Such money should have been taken out of “foreign currency reserves” (fiat money that is mostly not even paper – it only exists as lights on a computer screen) and turned into physical assets (such as gold and silver) and physically stored in Russia itself – trade could still be conducted electronically without the assets (the physical assets) having to be moved.
Other powers, such as the People’s Republic of China, have observed Mr Putin’s blunder, and will not make the same mistake themselves.
As for the Ruble – another fiat currency, no better than the Dollar or the Pound.
Bank of Russia data
I think says it all!
“Leaving 300 Billion Dollars in an electronic registry in Belgium was one of Mr Putin’s many absurd decisions.”
The Russians have effectively helped to fund the deaths of their own soldiers.
Russian debt to GDP is 20%. Inflation is 10%. Yield on Russian Government bonds is 15%. Real return of 5%.
Compare and contrast with UK, US, EU…
UK 95% US 125% EU 87% debt to GDP
UK 3% US 3% EU 2.4% inflation
UK 4.6% US 4.3% EU 3.3% 10 year bond yield
So the real yield in Russia is substantially higher, as is the RF Government’s ability to pay it.
When the conflict is over, and sanctions are unwound, which will perform better?
JJM – basically yes.
For all the talk of a “gold ruble” (last seen in 1914) by various people, Mr Putin himself is clearly totally trapped in the fiat money paradigm.
After all it is just so easy to fund government spending by creating money from NOTHING.
And when told “we have 300 Billion Dollars worth of foreign currency reserves” did Mr Putin even ask what this means? That, in reality, it just meant lights on computer screens – computer screens that Russia did not even control?
Of course, he did NOT – he understands none of this. At least he clearly did not three years ago – and I doubt he understands any better now.
The irony is that fiat money inflation and Credit Bubble banking (urged on the Russia of Boris Yeltsin by Western advisers) was what brought Mr Putin to power in the first place – the massive inflation and the terrible poverty it caused, brought him to power.
But he does not understand it. No more than Western political leaders do – who are also stuck in the fiat money and Credit Bubble banking paradigm.