Is Russia Becoming a Bastion of Safety in a Turbulent World?

For the first time since it defaulted on its $40 billion domestic debt in 1998, Russia issued $5.5 billion worth of eurobonds last week. Investors embraced the five-year bond, purchasing $5.5 billion of Russian debt with The Wall Street Journal dubbing the offering Russia’s “triumphant return.”

Bloomberg published this interesting chart last week comparing Russia’s credit-default swaps to the PIIGS (Portugal, Italy, Ireland, Greece and Spain). A credit default swap is the cost of insuring debt against default. The riskier the debt, the higher premium the market requires to insure it.

Despite carrying a lower credit rating, this chart shows that investors are valuing Russia’s debt as less risky then these countries. While this reflects the well-publicized debt problems these countries are having, it also shows how far Russia has worked to rebuild its credit the past 12 years.

With foreign exchange reserves of $400 billion, Russia remains a net creditor to the world but the five-year bond issuance is part of a grander strategy. Russia is looking to establish a benchmark yield so its corporations have access to cheaper credit and stimulate business growth.

Is Russia becoming a bastion of safety in a turbulent world? Bond investors seem to think so.

About Frank Holmes 263 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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