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What will happen to the ruble and public debt after new us sanctions?

Что будет с рублем и госдолгом после новых американских санкций?

Congress and the U.S. Senate will soon consider yet another package of sanctions against Russia, this time in the debate on the defence budget for 2020 are the chances of the adoption of those measures, from the introduction which several times refused the presidential administration, as Barack Obama and Donald trump.

However, the political situation has changed, and it is likely that this hard package do manage to push through Congress and the Senate. So, there is every reason now to discuss the probable consequences of actions against the Russian national debt, which claim that congressional Democrats Maxine waters and brad Sherman (already received preliminary support in his own party and even some Republicans).

The American legal system is arranged in a rather strange (from the point of view of a civilized European) way. It allows you to “wear” to any bill, especially the fiscal or quasi-fiscal nature of the amendment which, in fact, are separate laws and often have no (none at all) relevant to the subject of the main bill. Is a kind of legalized form of blackmail, which allows group members to crank out a simple scheme: if the country needs a defense budget, may budget will be adopted their amendments (often even not budgetary in nature) — for example, involving the introduction of sanctions against the Russian state debt. That is the “amendment” made to the draft defence budget for 2020 California congressmen-Democrats Maxine waters and brad Sherman.

If the defense budget will be adopted in this form, and then signed by Donald trump, followed by the imposition of a total ban on operations with Russian government debt instruments, which will be distributed to all citizens of the United States. Under the debt instruments are bonds of the Russian Ministry of Finance and securities Central Bank of Russia, which will be released after 180 days (or later) after the adoption of this bill. It is easy to see that sanctions of this kind have already been proposed as the Obama administration and the administration of the trump, and in both cases, the White house decided to refrain from such steps.

If such measures are introduced, their consequences can be divided into legal and psychological. After the introduction of American investors will not be able to buy new editions of Russian government bonds (which in theory should adversely affect their prices in the future and lead to the fact that the Finance Ministry will have to offer higher returns for new bond issues).

It is very likely that the authors are counting on the psychological aspect: many investors, not to be at excess risk would be considered a good idea in General to leave from the Russian market and to sell at any price existing packages of Russian bonds (even those that do not yet fall under the sanctions). If these investors will be many simultaneous withdrawal of the Russian market of government bonds (including the ruble) may have a negative impact on the quotes of all government debt and the ruble.

These calculations and hopes there are, however, some serious problems, because of which two of the presidential administration of the USA did not want to impose such sanctions. The first problem: the influence of American investors on the Russian market of public debt and the influence of American investors on the total demand for rubles — are not large enough to cause serious and lasting damage to the Russian market. Just look at the statistics of two major Russian exchange offerings of government bonds. In June, the Ministry of Finance announced that “nearly 60 percent of the volume dorazmeshchenija Eurobonds of Russia for $ 2.5 billion acquired by investors from great Britain, USA — 26 percent.” In March, the statistics were similar: “Investors from the UK bought more than half of new Eurobonds of Russia and investors from the USA — 20 per cent, the Finance Ministry said. Sanctions and “hostile rhetoric” the West has not undermined confidence in Russian assets, said the office”.

That is, even if all the American investors go, this is not enough to collapse. Moreover, the “sagging” prices on bonds will become more attractive for European and Asian investors.

Second problem: sanctions trivial way to bypass it with any serious offshore zones. The ban on direct ownership of Russian bonds in the form in which it was formulated, the us Congress (and in another way to formulate it is very difficult), provides the ability to get all the bonuses from investments in Russian government securities without directly owning them: American investor (whether a natural person, a company or investment Fund) buys shares or units in offshore (e.g., British or Swiss) Fund, which, in turn, buys Russian bonds. The formalities are met, but the sense of them in terms of the pressure on Russia and the ruble — no. May be responsible for sanctions in the administrations of Obama and trump even concern was to reverse the psychological effect: if you enter against Russia sanctions are ineffective and run into a mass “sanctioned cheating” on the part of American investors, it will look very bad from the point of view of the image of the United States as a world power — well, what kind of hegemon, where investors bypass the sanctions in order to invest in Russia? By the way, this scenario actually complained about us financial structure, which cares for the interests of the U.S. Treasury, which had once urged to abandon sanctions of this kind, not to “reduce the competitiveness” of the U.S. financial sector in the global financial services market.

Third problem: the deterioration of relations between Brussels and Washington, the chances that European investors will be to get rid of Russian assets for psychological reasons — are extremely small. European companies and investors continue to operate even with Russian companies, which fell under the “sectoral sanctions” of the USA, which hints at a willingness to take risks for the sake of preserving the possibility of income from partnerships with Russian organisations and investment in Russia.

Note that at the moment Russian government bonds is a very desirable and unique financial instrument that combines high reliability and high yield, which provides a solid demand from the Western investors. Because of the actions of the ECB, the Central Bank of Japan, Federal reserve and other Western Central banks in the world it is very difficult to find a reliable bond with any serious yield, and to assess the Financial Times at the moment is about 12.5 trillion dollars of government bonds in the world in General is trading with a negative yield. For example, German government bonds with maturities from 0.5 to ten years now you can only buy “at a loss” (that is, with a guaranteed negative rate of return), and according to the European Central Bank’s average yield on ten-year government bonds of the Eurozone countries with high investment rating is minus 0.2 percent, and the average yield on ten-year government bonds of all Eurozone countries as a whole is plus 0.2 percent. Against this background, to convince the European (and many American) investors that you need to give up buying Russian government bonds (both currency, and rouble), is almost impossible.

The British essayist Thomas Joseph Dunning once wrote that “capital is afraid of absence of profit or too small profit as nature abhors a vacuum”, stressing that “ten percent return of capital agree to any use” and at a higher yield — ready for any risk, but it was in a very different time, with other monetary policy and financial system. Now investors are ready to despise to the risk of sanctions for a much more modest yield (three to four percent in dollars), and if the European Central Bank and the fed will go to an even stronger decline in interest rates, the demand for Russian debt instruments in General, nothing can stop it.

The American congressmen-Democrats can understand — they want to hurt Russia, to wash off the shame of defeat in the presidential elections of 2016 and advance to “punish” her for her likely defeat of the democratic candidate in the election of 2020. But it is unlikely they will be able to achieve your goal. They hurt or lobbyists American investment funds, or the harsh economic reality of the financial markets, which will push European and American investors in the warm embrace of the Russian bear.

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