Sunday, April 17, 2011

From Russia with Bonds

All investors have their favorite themes or "guilty pleasures". In my case, it's Russian bonds. Despite a troubled past and lots of questions about the future, I seem to feel at ease laying down cash on Russian names and enjoy the pickup over counterparts from other parts of the more "developed" world.

This affinity was only reaffirmed during the credit crunch of 2008-2009. When other countries were scraping for answers and cowering from creditors, the Russians showed some pride and put their reserves where their cojones were. Here's the graph:

During 2008, Russia went through about 40% of its international reserves. And while the financial press was portraying that as a weakness, it was quite the contrary. Russia was telling its local entities and companies: "look, if you need dollars to pay off your international creditors, come and get them". That's
kind of what international reserves are for, after all. They certainly gained the respect of this bond junkie.

The yield nowadays are nowhere near what they were doing the crisis, but I still feel comfortable with Russian bonds and will indulge in my "guilty pleasure" quite often.

For example, in the telecom space, instead of AT&T, Verizon (US) or Vodaphone, I'll take some Vimpelcom or Mobile Telesystems, thank you. With a nice pickup in yield, to boot. (Russians are more cellphone-maniacs than any other country, BTW).

In the energy realm, instead of thinking BP, Exxon or Chevron, how about some Gazprom, which is half owned by the Russian government anyway? Or Lukoil or TNK-BP?

Want something more exotic or risky? How about Alrosa (Diamonds) or Evraz (steel).

Here's a few individual bonds by these issuers.

Finally, here's an excellent clip portraying the history of the soviet union, to the music of Tetris.


  1. Alex:
    are you more confortable investing 100K in Russian bonds ( say 6,5% YTM) instead of a compbo mixing 50KUS$ in risky Venezuelan 2022 (12%+ coupon/15% discount) and 50K in top 10Y Tbonds yielding near 4% ??

  2. The 10-yr's around 3.40% right now, but anyway...

    Tough, tough question. My problem is I can't be objective about Venezuela.
    It's an outlier and on numbers alone, should trade much much tighter.
    But it's Chavez-bizarro world.
    I blogged about that about a year ago and still feel the same way.

    It might be a worse trade, but I'm more comfortable in Russia, betting on Putin's pride, than dealing with Chavez' "locuras" in Venezuela.
    Maybe because it's further away, I don't see Russia's blemishes as I see Venezuela's.
    Ignorance is bliss.

  3. thank you very much for information