September 27, 2018 / 7:10 AM / 2 months ago

Russian debt chief stays calm amid U.S. sanctions threat

MOSCOW (Reuters) - The finance ministry in Moscow does not believe U.S. sanctions against Russian state debt are inevitable, and sees no imminent need to intervene in the bond market to support it, a senior ministry official said.

Konstantin Vyshkovsky, head of the state debt department at the Russian finance ministry, speaks during an interview on the sidelines of Moscow Financial Forum in Moscow, Russia September 8, 2017. REUTERS/Andrey Ostroukh

The sanctions’ theme has unnerved markets for months but became more acute in August when concerns grew that Washington might expand its regime against Moscow by slapping penalties on holdings of new Russian debt.

“We do not think that their imposition is ...a done deal,” Konstantin Vyshkovsky, head of the state debt department at the Finance Ministry, told Reuters in an interview cleared for publication this week.

Vyshkovsky spoke on Sept. 7, at a time when the threat was driving a major selloff of Russian debt and the rouble.

He said he did not expect a decision from Washington before November’s mid-term elections.

He also did not think the extra sanctions would be enforced as “limitations on the state debt would mean limitations (on)... social spending in particular. And (Washington has said)... several times that sanctions should not be aimed at Russian citizens.”

The first batch of U.S. sanctions, against individuals with close ties to the Kremlin, were imposed in 2014 over Russia’s annexation of Crimea and involvement in the Ukrainian conflict.

They were expanded for what Washington called “malign activities”, including meddling in western elections - something Russia has repeatedly denied - and U.S. lawmakers said more sanctions were in the pipeline.

INVESTOR EXODUS

Prices of Russian OFZ treasury bonds nosedived in August and early September as foreigners rushed to sell, and the share of the market held by non-residents slipped to 26.6 percent on Sept. 1 from a record high of 34.5 percent on April 1.

Since bottoming at more than two-year lows on Sept. 10, OFZ prices have recovered some ground along with the rouble as a broader emerging market selloff has eased.

Vyshkovsky said the finance ministry could intervene in the market to support prices but that was not currently a serious option.

“I don’t think it is relevant to say that such a measure is needed now. If we did it (in the future), then only to rein in a mood of (market) panic,” he said.

Vyshkovsky declined to say to what extent OFZ yields should rise for the financial authorities to step in. For now, he said, the ministry could limit the supply of bonds by not holding its weekly OFZ auctions.

The ministry has since canceled all such auctions in September, citing adverse market conditions.

Vyshkovsky said he hoped the foreigners’ share of OFZ bonds would not drop below 25 percent, and that a stabler market situation would enable the ministry to borrow as planned next year.

Writing by Andrey Ostroukh; editing by John Stonestreet

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