The following is an excerpt from Natasha Doff and Artyom Danielyan | March 12, 2017 | Bloomberg.com |
The political turbulence roiling the European Union is making Russia look like a safe bet to bondholders.
For money managers wary of the elections looming in Europe, the worst relations with the West since the Cold War and sanctions on Russia’s biggest companies are no deterrent. The nation’s debt is cheaper to insure against default than Italy’s. A victory for populists in the Netherlands on March 15 could give anti-EU candidates a boost when voting is held in France, Germany and possibly Italy this year.
Russian bonds have the allure of a haven after recovering oil prices helped pull the economy from its deepest recession in two decades and lift the ruble from a record low. With yields 10 times higher than the euro-area average, investors are better compensated for risk in Russia than in France, where most polls show National Front candidate Marine Le Pen leading the first-round vote next month.
“It’s an eternal paradox that a country that’s under sanctions is considered to be low volatility and attractive to investors,” said Greg Saichin, the chief investment officer for emerging-market bonds at Allianz Global Investors in London, which has 480 billion euros ($511 billion) under management. “You have to take your hat off to the way they’ve managed the recession.”
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