Russian markets cheer Kudrin promotion
By Douglas Busvine
MOSCOW, Sept 25 (Reuters) - Finance Minister Alexei Kudrin's promotion in Russia's revamped cabinet is positive news for economic stability, and the bond market is proving to be the biggest winner.
Long-dated OFZ government bonds, battered by the fallout from the U.S. subprime mortgage crisis, have rallied dramatically since Kudrin vowed last week that the authorities would keep Russia's financial system liquid.
Kudrin's promotion by President Vladimir Putin to the rank of deputy prime minister in Monday's ministerial reshuffle, which strengthened the modernising bias of the cabinet, may lend further support.
Fixed income analysts are starting to talk about a Kudrin 'put' option, similar to the Greenspan 'put' that underpinned U.S. stocks through much of Alan Greenspan's 18-year tenure at the U.S. Federal Reserve.
"We regard a sharp recovery in the OFZ market as a signal to the market that monetary authorities are willing to support rouble bond interest rates at low levels and their willingness to offset the negative impact of external factors," commented Nikolai Podguzov at Renaissance Capital.
Kudrin pledged on Monday night to maintain the course of economic policy, so no surprises there.
More important, say analysts, was his statement last Friday that there was "no doubt" Russia's financial system had the tools at its disposal to guarantee development.
"The central bank and the government have sufficient means to support the level of rouble liquidity on our markets needed to finance our economy," Kudrin told an economic forum in Sochi.
OFZ treasuries have been on a roll ever since, with yields on long-dated bonds falling by 30 basis points on average over the past two trading sessions, and by 50 basis points on shorter maturities. Bond yields fall as prices rise.
WHO'S BUYING?
Kudrin was not specific about how the market would be stabilised but bond traders suggested that a state-controlled bank may have been behind the heavy buying that began on Friday.
They ruled out state-controlled banks such as VTB or Gazprombank as likely bidders, but said Russia's new state Development Bank might have entered the market. The Development Bank declined to comment.
More broadly, analysts welcomed the new makeup of Putin's cabinet, with the appointment of technocrat Dmitry Kozak to a beefed-up Regional Development Ministry.
Chris Weafer, chief strategist at UralSib brokerage, said the policy focus may now shift to investments and infrastructure and away from the asset redistributions of recent years that have made headlines above all in the oil industry.
Some analysts said the core economy team of the new cabinet may have the staying power to outlast the current election cycle that will see Russians elect a new parliament in December and a successor to Putin in March 2008.
Under Kudrin, Russia has run big fiscal surpluses, paid down debt and piled up the world's third largest central bank reserves worth $420 billion, creating a major buffer to cope with the credit crunch that has frozen debt markets worldwide.
The Central Bank of Russia has won high marks for acting promptly to keep the financial system liquid, but risks are mounting as corporates and banks find it difficult to refinance debts as they fall due.
Analysts estimate that Russian issuers have postponed over $7 billion in Eurobonds since the squeeze hit during the summer, but so far there have been no Russian defaults either on the domestic or international capital markets. (Additional reporting by Gleb Bryanski)
