DON’T dust off your collection of Tsarist railway bonds just yet but Moody’s, the debt-rating agency, has given Russia the financial distinction of investment grade status, the first time in the country’s troubled financial history.
Moody’s announced the decision yesterday to raise its rating of Russian Federation bonds and notes to Baa3 from Ba2, sending jaws dropping in dealing rooms. The Russian eurobond soared in celebration and the stock market ended the day at a record high.
The surprise decision is akin to admitting the Russian financial market, long-viewed as little better than a Wild West gambling saloon, into a gentleman’s club and will boost the credit ratings of Russian companies, making it easier for them to borrow on the world’s money markets.
Analysts were surprised by the sudden decision and some predicted that a speculative bubble might follow, similar to the mid-90s inflationary spiral that led to the financial collapse in 1998. Private money has been leaving Russia in recent months with the Russian central bank reporting an $8 billion (£4.8 billion) outflow.
However, the conservative Moody’s has moved Russia two notches up the scale, putting the country at the bottom step of the stairway to heaven for investment grade nations. That does not quite bring Russia into the frame for trustees investing for widows and orphans but it does allow funds who are barred from investing in junk bonds to buy Russian debt.
Christopher Granville, an economist at UFG, the Moscow brokerage, said Moody’s was simply recognising the solidity of Russia’s finances. “The risk of default is practically nil. Russia has massive reserves, thanks to three and a half years of very strong oil prices.”
Moody’s has focused on Russia’s finances in making the decision rather than wider questions of political risk relating to elections and the progress of institutional reform in the country which is bogged down in political infighting.
Moody’s announced the decision yesterday to raise its rating of Russian Federation bonds and notes to Baa3 from Ba2, sending jaws dropping in dealing rooms. The Russian eurobond soared in celebration and the stock market ended the day at a record high.
The surprise decision is akin to admitting the Russian financial market, long-viewed as little better than a Wild West gambling saloon, into a gentleman’s club and will boost the credit ratings of Russian companies, making it easier for them to borrow on the world’s money markets.
Analysts were surprised by the sudden decision and some predicted that a speculative bubble might follow, similar to the mid-90s inflationary spiral that led to the financial collapse in 1998. Private money has been leaving Russia in recent months with the Russian central bank reporting an $8 billion (£4.8 billion) outflow.
However, the conservative Moody’s has moved Russia two notches up the scale, putting the country at the bottom step of the stairway to heaven for investment grade nations. That does not quite bring Russia into the frame for trustees investing for widows and orphans but it does allow funds who are barred from investing in junk bonds to buy Russian debt.
Christopher Granville, an economist at UFG, the Moscow brokerage, said Moody’s was simply recognising the solidity of Russia’s finances. “The risk of default is practically nil. Russia has massive reserves, thanks to three and a half years of very strong oil prices.”
Moody’s has focused on Russia’s finances in making the decision rather than wider questions of political risk relating to elections and the progress of institutional reform in the country which is bogged down in political infighting.
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