FX ruble russia steve mnuchin

‘Nuclear Option?’ Mnuchin Bails Out Ruble – For Now

So apparently, the ruble has rebounded thanks to Steve Mnuchin.

So apparently, the ruble has rebounded thanks to Steve Mnuchin.

Steve was speaking outside a congressional committee hearing on Wednesday afternoon and he said he’s sticking with the Treasury’s January report that advised against sanctioning Russian government debt.

Here’s an annotated chart that shows you how the day has shaped up:


The ruble had fallen for a fifth day, bringing its losses on the week to a harrowing 9% and as Bloomberg reminds you, “a bill proposed in Congress last week resurrected the idea of banning the purchase of Russian government debt, fueling market uncertainty.”

That’s known as the “nuclear option”. Foreigners hold some 34% of Russia’s OFZ ruble bonds – a record.

As for whether the U.S. could eventually go that route were Russia to remain recalcitrant on the variety of issues that have caused relations between Moscow and the West to deteriorate of late, Deutsche Bank thinks it’s unlikely. To wit, from a note out Wednesday comparing now to 2014:

Oil price is high and may increase further due to the geopolitical concerns. The 2014 sanctions coincided with the sharp fall in oil prices, making it harder to disentangle the effect of sanctions and lower oil prices. We can only point out that corporate roll-over ratios have remained comfortable during all the previous falls in oil prices, but fell sharply following the US 2014 sanctions. Russia’s fiscal accounts are solid and the Bank of Russia is, if anything behind the curve cutting rates as opposed to autumn 2014 when the Bank of Russia was behind the curve hiking rates.


What it means for OFZ? Markets quickly switched to thinking the unthinkable whether sanctions could be extended to the OFZ market. We believe at this stage it is unlikely. Targeting OFZ is the final lever that the US administration has and it may keep it in reserve. There are a couple of legislative initiatives targeting sovereign debt, including bipartisan bill led by a Republican Senator Marc Rubio and the somewhat more obscure bill by Democrat Representative Joaquin Castro sponsored by Republican Representative Michael R. Turner, who previously served as the president of the NATO Parliamentary Assembly from 2014 to 2016. We will be watching out for signs from key Republican committee chairs for support of these legislation.

The Castro bill is embedded below.




3 comments on “‘Nuclear Option?’ Mnuchin Bails Out Ruble – For Now

  1. US selling Russian debt seems like a moot threat because Russia’s ally China can buy it all with spare change. And as Ray Dalio published last week, US is relatively weakly positioned for a capital war.

    I’ll bet that US will not sell Russian debt and China will not sell US debt. Not unless things get much worse.

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