Ruble Crashes Over 8% As 'Panic' Spreads To Bond Market

The Ruble has collapsed to its weakest against the dollar since Dec 2016, crashing over 8% since the last round of US sanctions hit.

The fallout from the latest set of US sanctions continues to weigh on investor sentiment and positioning, with longs in Russia assets probably being taken off and increased hedging going on as USDRUB breaks to 64.00.

This is the biggest 2-day drop since Dec 2014...

“The major risks to the Russian currency come from geopolitics,” Vladimir Miklashevsky, a senior economist at Danske Bank A/S in Helsinki, said in a research note.

“If the situation does not get worse, we would see potential in buying. However, the current setup is too murky, especially on a possible escalation in Syria between Russia and the U.S.”

Of course, as is always the case, jawboning has begun with officials suggesting intervention is coming:

  • *BANK OF RUSSIA MAY SELL FX IF NEEDED: SHVETSOV
  • *BANK OF RUSSIA: SEE NO REASON FOR MASSIVE NON-RESIDENT OUTFLOW

But, Citi's local traders warn that it is unlikely that the investment climate will improve in the near future. The combined fallout from the US sanctions and the recent chemical attack in Syria creates an uncertain geopolitical environment for RUB. He notes that the market narrative is evolving from "sell USDRUB spikes" to "buy-the-dip".

Indeed, the panic in Russia equity markets revolves not just around the companies sanctioned, but who could follow. Citi Research has been cited in a Bloomberg article:

"If [those companies] are targeted, it reasons that any Russian company can be included,” Barry Ehrlich, analyst at Citigroup in Moscow, said in a research note. “Investors may raise their risk weighting on Russian equities and other assets, as a result,” which could lead “to a derating across the board."

The price of gold in Russia has surged back near its highest since the US election in 2016...

Interestingly, Russian stocks are modestly bid today...

 

But bonds are getting monkey-hammered...as the government canceled a bond auction - The Finance Ministry cited unfavorable market conditions in its first decision to scrap a debt sale since August 2015 (while it was a regular occurrence in 2014).