Corporate bonds

Russian corporate bonds jump as vultures spy on bargains despite war in Ukraine

Prices of a handful of Russian corporate bonds have surged in the past two weeks as investors sniffed out bargains despite the ongoing war in Ukraine.

Obligations of an energy company Lukoil gained significantly, with investors appearing to focus on companies with large operations outside of Russia.

A Lukoil dollar bond that matures in 2023 had risen to 61 cents on the dollar on Thursday, according to Bloomberg prices, after falling as low as 31 cents in early March.

steel company EvrazThe 2023 dollar bond had risen to 64 cents on the dollar, after plunging to 32 cents at the start of the month. The company is incorporated in the UK, although its main operations are in Russia, and its main shareholder is the sanctioned oligarch Roman Abramovich.

Analysts said some investors were attracted by cheap prices, and that Russian-Ukrainian peace talks had somewhat clarified the outlook. Russian companies have generally maintained their bond payments, despite lingering concerns about defaults.

“They’re very cheap, obviously, compared to anything out there,” Althea Spinozzi, senior fixed income strategist at Saxo Bank, told Insider.

“The second reason is that much of the positive sentiment is driven by the news that a deal between Russia and Ukraine may be achievable.”

The dollar-denominated debt of telecommunications company Veon and metals group Nornickel also rose sharply, while bonds issued by natural gas producer Novatek climbed.

Spinozzi said whoever buys takes a huge risk on Russian corporate debt. She noted that Saxo Bank, like many other lenders, has stopped trading Russian bonds.

Trading in Russian corporate debt surged in March, according to market data shared with Insider by MarketAxess.

Trading in dollar-denominated corporate debt averaged $144 million per day last month, MarketAxess said, compared to $79 million per day in March 2021. However, most trading activity took place at the beginning of the month, when investors were rapidly dumping. Russian assets.

Spinozzi warned that prices might not accurately reflect the market. She said the sanctions had caused huge disruptions in trading and frozen the market in places.

“There are a lot of quotes from brokers who want to advertise a business in a certain company. But when you call one of these brokers, they may not have a market for it” , she said.

Bloomberg reported in early March that JPMorgan and Goldman Sachs were among Western institutions to collect debt from unsanctioned companies.

The report earned banks a reproach by Senator Elizabeth Warren, who said they were undermining efforts to exclude Russia from the global financial system.

A Goldman Sachs spokesperson said the bank’s trading activity in Russian securities was designed to reduce risk and help clients reduce their exposure to Russia.

JPMorgan declined to comment.