Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>Following the invasion of Ukraine by Russia, it is only a matter of time before the US and other western allies impose a new set of economic sanctions on Russia</li>
<li>A directive from the US Treasury this week expanded the restrictions on Russian bonds as it prohibits participating in the secondary market of new bonds, thereby cutting financing for Russia. </li>
<li>With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different scenarios.</li>
</ul>


Following the invasion of Ukraine by Russia, it is only a matter of time before the US and other western allies impose a new set of economic sanctions on Russia
A directive from the US Treasury this week expanded the restrictions on Russian bonds as it prohibits participating in the secondary market of new bonds, thereby cutting financing for Russia. 
With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different scenarios.


Risks to Russian Bonds from Escalating Sanctions

Among the themes in EM rates that we have highlighted in recent weeks are: EM rates have underperformed the US and, within EM, rates in Latin America have underperformed Asia. In this note, we look at the performances of rates in different countries adjusted by their respective betas that corroborate the earlier findings and help identify the outliers more clearly.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Among the themes in EM rates that we have highlighted in recent weeks are: EM rates have underperformed the US and, within EM, rates in Latin America have underperformed Asia. In this note, we look at the performances of rates in different countries adjusted by their respective betas that corroborate the earlier findings and help identify the outliers more clearly.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Which Countries Are Outliers Within EM Rates This Year?

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Higher Real Rates in EM than in DM

Digging deeper into the underperformance of EM rates to the US, we find that within EM, the regional differentiation has been quite significant. Specifically, while rates in Latin America have underperformed the rally in the US significantly, rates in Asia have lagged by much less. This differentiation argues for relative-value trades between rates in LatAm and Asia as well as within countries in Asia.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Digging deeper into the underperformance of EM rates to the US, we find that within EM, the regional differentiation has been quite significant. Specifically, while rates in Latin America have underperformed the rally in the US significantly, rates in Asia have lagged by much less. This differentiation argues for relative-value trades between rates in LatAm and Asia as well as within countries in Asia.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: The Gap Between Rates in LatAm and Asia Grows

As the correlation of rates in Asia and Latin America touches its lowest level in multiple years, we point out that historically such extremes don't last, implying better performance for LatAm rates ahead.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

As the correlation of rates in Asia and Latin America touches its lowest level in multiple years, we point out that historically such extremes don't last, implying better performance for LatAm rates ahead.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Regional Correlations Within EM Break Down

India

Overnight Indexed Swap (OIS) is a fixed/float interest rate swap where the floating leg is computed using a published overnight index rate. The index rate is typically the rate for overnight unsecured lending between banks, for example the Federal funds rate for US dollars, Eonia for Euros or Sonia for sterling

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Risks to Russian Bonds from Escalating Sanctions

With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Which Countries Are Outliers Within EM Rates This Year?

Looking at the beta-adjusted performances of rates in EM countries corroborates our earlier findings that EM has lagged the US and LatAm rates have...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Higher Real Rates in EM than in DM

Real rates in EM are much higher than in the US, making the spread of EM local debt to the US attractive, especially with EM rates volatility...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: The Gap Between Rates in LatAm and Asia Grows

As EM rates have underperformed the rally in the US, we find that there has been significant regional differentiation within EM, arguing for inter...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Regional Correlations Within EM Break Down

As the correlation of rates in Asia and LatAm touches its lowest level in multiple years, we point out that historically such extremes don't last,...

Gautam Jain, PhD, CFA

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52-week Range

Market Cap (USDm)

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