Title: Volatile rouble pares intraday losses as Russia slips into default zone

Jun 27, 2022 04:15AM ET

By: AnalysisWatch

The rouble recovered some of its early losses in volatile trading in Moscow on Monday, as Russia appeared set to declare its first sovereign default in decades after a payment deadline passed without some bondholders receiving overdue interest.

The 30-day grace period for the $100 million in interest payments due on May 27 expired on Sunday.

The Kremlin says there is no reason for Russia to declare bankruptcy but that sanctions have hampered its ability to send money to bondholders, accusing the West of trying to drive it into an artificial default.

The ruble was 0.2 percent stronger against the dollar 53.31 at 0758 GMT, paring losses after falling as much as 2% earlier to its lowest level since June 21 54.4975.

Against the euro, it rose 0.1% to 56.03.

The strong ruble is squeezing earnings of export-oriented companies and could weigh on the economy, which is entering a recession after tough sanctions over what Moscow calls a "special military operation" in Ukraine.

Capital controls have supported the ruble for months, and this week's peak tax period at the end of the month, during which exporting companies convert their earnings from dollars and euros into rubles, may provide short-term support.

There was no increase in currency sales by exporters last week, according to a note from Alor Broker, meaning they could leave the currency conversion process to the last minute, which would lead to a strengthening ruble.

In the bond market, the yield on the 10-year benchmark OFZ bond, which moves inversely to its price, fell to 8.68%, its lowest level since early 2022.

Russian stock indices were also up.

The dollar-denominated RTS index rose 0.3 percent to 1,418.7 points. The ruble-denominated MOEX index rose 0.3% to 2,399.8 points.