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The ruble is plumbing record lows as the U.S. and EU tighten sanctions against Russia because of its involvement in Ukraine. This is set against the backdrop of anxiety about developing-nation assets as the U.S. Federal Reserve prepares to lift interest rates, threatening to draw investment away from riskier assets. Investors and traders can use Bloomberg solutions to monitor the gyrating ruble, examine the interconnectedness of Russia’s economy with Europe and the rest of the world, weigh risks and spot opportunities. This document provides a glimpse of how Bloomberg functions can help you. THE IMPACT OF SANCTIONS
Russia’s economy has been dented as sanctions bite. will touch 40 per the dollar during the next six months, The ruble has slumped 14 percent this year against the according to data compiled by Bloomberg. The data uses dollar and Russian banks and corporates are struggling the implied volatility quotes from the FX options market given to raise finance. While the Sept. 5 cease-fire between to Bloomberg by leading major and local Russian banks and Ukrainian government and Russia separatists increased therefore captures their perception of spot movements. hopes of a lasting truce, a lot of economic damage has already been done: consensus GDP forecasts for Russia in 2014 have been slashed to 0.3 percent from 2.2 percent at the beginning of the year, according to Bloomberg surveys. The tit-for-tat penalties have not only harmed Russia’s growth and stoked inflation — they also make a recovery in Europe more difficult.
THREATS TO BANKS In the initial set of economic sanctions imposed in late July, the EU barred five state-owned Russian banks from selling shares or bonds in Europe, restricted the export of equipment to modernize the oil industry, prohibited new contracts to sell arms to Russia, and banned the export of machinery, electronics and other civilian products with military uses.
With reduced funding to Russian banks and the interbank Ruble plummets as sanctions bite market rates rising an average 40 percent, many local banks in Russia may turn to the central bank for cheaper financing. The ruble’s implied volatility has increased recently with The shift in Russian banks’ funding mix may prompt the central option traders positioning for further weakness in the Russian bank to widen the range of instruments accepted as collateral, currency. The three months at-the-money USDRUB implied including mortgages, similar to European Central bank actions. volatility has increased by 3 vols up to 11.10 vols as of Sept. 10 from 8.15 vols at the beginning of the year, according The financial industry is a barometer of the Russian to Bloomberg data. While the three months 25 delta risk economy’s health. Banks are increasingly beholden to their reversal has gone up to 2.9 vols in favor of ruble puts from lender of last resort: borrowings from the central bank now 1.6 vols at the beginning of 2014. total $154 billion, representing 10 percent of total Russian bank liabilities excluding equity. Commercial banks’ loan-to- DEPENDENCY ON OIL & GAS deposit ratio was 105.4 percent with central bank funding Besides the banking sector, oil and gas is another pivotal and 133.2 percent without. Russian industry given it is the largest energy exporter in the world. U.S. and EU sanctions against Russia are targeting RUBLE ROCKED crude oil and related products, rather than natural gas The ruble has retreated 14 percent against the dollar this exports. The Russian economy is highly dependent on EU oil year, the most among 24 developing countries monitored by and gas exports, with crude oil exports accounting for half of Bloomberg with the exception of the Argentine peso. Trading Russia’s budget revenue. in ruble options indicates a 50 percent chance the currency
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With the exception of Gazprom and Novatek, Russia’s oil Russia has the opposite problem: as food retailers report on and gas majors are geared toward liquid gas production. earnings, it’s clear that prices are rising. Russian oil companies such as Rosneft, Lukoil and Tatneft make most of their money from crude oil and petroleum Metro Cash & Carry has warned that domestic food exports to European and Asian markets. A significant revenue suppliers are trying to increase food prices as local produce stream will be imperilled if current U.S. and EU sanctions is substituted for EU, Norwegian and U.S. equivalents which against the country persist. have been sanctioned. Immediate price increases of between 4 percent and 10 percent, as requested by some suppliers, The recent territorial disputes between Ukraine and Russia may fuel food inflation. As anticipated, salmon is proving one may spur new efforts in the EU to diversify energy supplies of the most difficult items to substitute, with Chile the likely using new pipelines, increasing liquefied natural gas alternative to Norway. imports, installing more renewable capacity and ramping up indigenous production via shale gas. The EU has pumped a Russian retailer X5 has played down the potential for gaps record volume of natural gas into underground inventories to to appear on the shelves of Russian supermarkets as it’s minimize the risk of shortages during the coming winter. confident that alternative suppliers can be found for most of the products affected by the government’s food-import ban. Likewise Russia has sought to diversify its customer base Fish, fruit and vegetables and cheese are likely to be the with Gazprom agreeing a 30-year gas-supply deal with China hardest to replace. Food inflation is already 9.8 percent in to reduce the reliance on Europe for gas export revenue and Russia, ahead of the 7.5 percent overall rate and it’s unlikely boost sales. Currently the biggest exports of gas go to Western that this will fall, potentially squeezing consumer spending. Europe while CIS countries and Central Asia combined accounting for only half of exports to Western Europe. — Annie Grebenyuk, Bloomberg Foreign Exchange Application PEACHES TO CABBAGE Specialist and Bloomberg Intelligence Analysts In Europe, the restrictions have pushed prices lower for everything from Spanish peaches to Latvian cabbage and Finnish dairy products, according to Brussels-based farm lobby Copa-Cogeca. European retailers are already suffering from slow sales and are likely to see further price deflation for perishable products, putting pressure on margins.
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Run {RUBBASK Curncy GP
Russia’s international reserves have decreased by over $40 billion in an effort to stabilize the ruble, while interest rates have gone up. The key rate was 5.5 percent in February and has been raised to 8 percent now, which helps make shorting the ruble more expensive.
Multiple Security Chart
The recent intensification of trade sanctions contributed to a spike in USDRUB options trading. Run Swap Data Repository Volumes {SDRV
SDRV
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Published Aug. 15 OMST
DETERMINING THE DIRECTION OF THE RUSSIAN RUBLE Bloomberg was the first to report that Russia unexpectedly raised its key interest rate 150 basis points on March 3 as the threat of President Vladimir Putin invading Ukraine prompted the ruble to slump. Use Bloomberg tools to analyze market expectations of where the ruble is headed.
Even with the ruble’s weakness this year, most market analysts are predicting that the currency will strengthen during the next few months.
Run {FXFC
To see the details of the individual forecasts, click on ‘Russian Ruble USDRUB’. The screen will bring up the highest, lowest, median and mean forecasts. In the bottom table, click on the gray titles to sort the forecasts in either Analyst Forecasts ascending or descending orders.
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The FXFM function translates implied volatility levels from the FX option market into probabilities, determining the chances that the FX scenario will be realized during the selected date range. As of March 6, the options market is anticipating an 80 percent probability of the ruble falling within a one-standard deviation range of between 34.4 and 39.8. FX Options Market
Both the forward market and analyst forecasts fall within this range, with the option market looking for a deterioration of the ruble, while the analysts expect a slight appreciation.
A real effective exchange rate, or REER, can be used to establish if a currency is mis-valued and by how much. REERs have signaled large exchange rate overvaluations in the run-up to many financial crises.
To see ruble REER, run {WCRS
To see the long-run trend in the ruble’s real effective exchange rate, type “Russia REER” in the command line and select ‘922.028 Index – IMF Russia CPI Based Real Effective Exchange Rate’ from the auto-complete menu. Run {GP
With the exception of the financial crisis in 2008-09, the ruble’s real effective exchange rate ruble has been appreciating since 1999, which could imply an overvaluation and potential for a correction.
The three functions give different perspectives on the ruble. While the FXFC suggests the ruble may strengthen, FXFM indicates the possibility of ruble depreciation in the next quarter. WCRS REER, which gives a long-term prediction compared with analysts’ short-term forecasts, suggests the ruble is overvalued.
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Published Mar. 12
GAUGING RUSSIAN BANK EXPOSURE TO UKRAINE The solvency of Russian banks exposed to Ukraine may be materially impacted by the heightened political and economic stress between two countries, according to Fitch. Bloomberg functions help to analyze the vulnerability of the Russian banking system to conflict in Ukraine.
Run {FIRST
One of the recent items included ‘Fitch: Russian Banks’ Significant Ukraine Exposures Raise Risks’. The story gives estimates of the Russian banks’ exposure to Ukrainian crisis, with VEB, Gazprombank and VTB on top of the list. For the full statement, go see {NSN N1JYTH3PWT1E
Fitch also says Ukraine’s erosion of its foreign exchange reserves may trigger a downgrade. Tracking Russia news in First Word
Type {WIRA
Click on ‘Europe’ to see a list of European countries. In the year to Jan. 31, Ukraine’s reserves fell almost 30 percent, with the biggest drop occurring in January, accounting for almost 15 percent. At the same time, Russia’s reserves have not seen a significant decrease.
According to Fitch, the most exposed banks (relative to equity) are Vnesheconombank (74 percent), Gazprombank (about 40 percent) and VTB (at least 14 percent). International reserve assets
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The increased risk premium for Russian assets following the Ukraine crisis may accelerate foreign capital outflows, which totaled $62 billion in 2013. This will pressure Russia’s GDP outlook.
Capital outflows from Russian banks
From the previous screen, select ‘Markets’ on the left panel.
Russian bank stocks, led by Sberbank and VTB, recorded the biggest intraday decline in five years and posted a monthly decline of about 20 percent, each on the growing risk of Russia invading Ukraine. Both lenders have restricted their lending activities in Ukraine as the crisis escalates.
As mounting tensions in Ukraine became a catalyst for risk aversion, here is a reminder on how to monitor critical developments:
Run {TOP
For real-time monitoring, click the gray ‘All’ button at the top right of the Ukraine feature page Change the ‘Source’ dropdown to Key Newswires to narrow down to a collection of top news publications Click on the ‘Source’ dropdown again. Type ‘TWT’ and hit
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Run {ECTR
The data are provided by the International Monetary Fund Direction of Trade Statistics, which has its own hierarchical method of grouping countries and regions.
The year and periodicity can be changed to determine if trade between countries has increased or decreased and if one country’s trade imbalance is expanding or contracting. It also shows which countries maintain strong ties (or are dependent on each other) as indicated ECTR shows imports, exports & total trade by the size of the trade flows, as well as further analysis on the degree to which international sanctions and regulations have affected countries such as Iran in the past, forcing them to forge new trading relationships.
Select ‘21) Table’ in the red toolbar on the left.
Line 11 shows that Russia was a net exporter to the U.S. of $10.4 billion in 2013.
Still, imports from the U.S. of $16.7 billion remain significant.
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Published Aug. 10
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The European Commission estimates that Slovakia will have reverse flow capabilities of up to 22 million cubic meters a day in the third quarter.
Even with the extra imports expected from Slovakia, Ukraine doesn’t have the imports to cover more than half the volume typically supplied by Russia during winter.
The last dispute between Ukraine and Russia was in January 2009 when Ukraine began siphoning off gas destined to the EU, an act that resulted in Gazprom cutting all gas transit through Ukraine. This time around could see a Gas Flows into Ukraine repeat: Gazprom CEO Alexei Miller told journalists on June 27 that Ukraine’s gas storage is not full and so the probability of seeing “unsanctioned siphoning of gas as early as this autumn” is “very large.”
Click on {SEUM
Gazprom supplies one third of the EU’s gas, of which 15 percent is piped through Ukraine. When Gazprom cut all gas transited through Ukraine in 2009, European gas prices surged up to 40 percent.
In the event that gas flows through Ukraine are again halted, the tight supply balance in Europe make it likely that outages of other supplies, such as the North Sea, would trigger large price swings. Monitor supply squeezes using the LNG & North Sea Oil & Gas Outages function {GASO
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Run {SRCH
Save the search using the top-left menu.
Searching for U.S. dollar investment grade Russian financial bonds
Next, run the {CRV
Select ‘Fitted Curve’ as the methodology to be used together with the list of bonds identified in the previous step.
As a source for securities, choose the search you saved before. This list can be edited further now; securities added and removed; and the preferred pricing source chosen.
Click ‘Next’.
Selecting curve creation methodology
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The Nelson-Siegel model uses a long-term yield rate, curve slope, curvature and time-decay factors which generates a standard best fit model widely used in academia and by central banks to calculate yield curve constant maturity points.
Other commonly used models are available.
Adding list of bonds into custom curve
To chart the curve, run {GC
This example shows the short end of our custom ‘Russian Financials IG’ curve has moved by about 100 basis points, highlighting the increased short-term funding costs for Russian banks.
Building USD Russian financials IG sector curve
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Published Apr. 4
Plotting custom curves on GC
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Run {FICM
Click on ‘All cash bonds’ to see a time series of the spreads. The screen shows the weighted average option-adjusted spread for all emerging market bonds tracked within {FICM
Fixed Income Credit Monitor
Emerging market bonds widened substantially mid-2013 as expectations grew of rising interest rates in the U.S. In comparison, recent volatility in late February and early March linked to the Russia/Ukraine crisis has been more modest, suggesting little contagion across all emerging market bonds.
EM Bond Spreads for the Past Year
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Emerging Market Materials daily movers
To put the current spreads for any corporate in context, click on the name to view their individual bonds. For example, click on Severstal OAO, a Russian steel-maker and mining company. {FICM
Severstal’s USD bonds current and historical spreads
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Run {GC3D
The surface shows that yields have increased across all tenors except the very short end. Mousing over the surface shows the yield at different tenors at different times.
Click the surface at the most recent two-year yield. The bottom-right chart shows how the two-year yield has increased more than 100 basis points to 6.88 percent from 5.82 percent on April 5, 2013.
Russia’s yield curve moves out across the curve Hovering over other points on the surface shows how the yield curve has evolved. Curves are projected on the left pane, while the yields for a given maturity are projected on the back-right pane. To rotate, pan and zoom, use the options at the top of the surface.
Click ‘1) Graph Curves’ at the top right to get a more precise view of how Russia’s yield curve has changed.
The histogram at the bottom shows the difference in Russian sovereign yields across the curve. The five-year tenor has the biggest difference, with an increase of 151.5 basis points. Hover over the top of the bar for a pop- up detailing the exact spread.
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Published Mar. 5
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Run {WCDM
India, Russia, Brazil and South Africa are rated BBB- by S&P, the lowest investment-grade rank. The only BRICS country rated higher is China, at AA-.
At top left, use the dropdown for the amber field to the right of ‘Emerging Markets’ to flip the time period to ‘1 Year’.
Comparing the BRICS laggards
Russia is the only sovereign with a negative outlook from all three major rating agencies. It is also the only BRICS market with a wider five- year CDS spread over the past year.
Of the four BRICS laggards, Russia also has the highest short-term interest rates and year on year, it is growing at the slowest rate.
Russia stands out
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Finding the Russian benchmark 10 year bond in rubles Run {FISA
Russia’s deteriorating credit quality, coupled with an economy that faces stagnation, makes it vulnerable to losing investment grade. With rising political risk and the impact of economic sanctions, the most likely outcome is that Russia will be the first of the BRICS to fall to junk status.
Assessing the bond return under different rate scenarios
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Published Aug. 20
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