Euroclear shuts off exit route for rouble bond investors

Foreign investors are now effectively trapped in Russian rouble-denominated bonds after Euroclear stopped accepting payments in the currency, slamming the door on one of the few exits as sanctions imposed by the west bite deep in to the country’s financial system.

“To the extent legally permissible, you should wire out any remaining long balances in rouble as soon as possible,” the Belgium-based securities depository told customers.

It will reject new securities settlements in Russian domestic securities from the end of the day, it added in a notice issued hours after its main rival, Luxembourg’s Clearstream, announced a similar measure overnight.

“It seems everyone is now trapped” in Russia’s rouble bonds, said one emerging markets portfolio manager. Overseas investors held $41bn of Russia’s local currency government debt at the end of 2021, according to data from the central bank.

“The only option foreigners have is to hunker down,” said Paul McNamara, an emerging markets debt portfolio manager at GAM.

Euroclear and Clearstream are an unglamorous but vital part of the global financial markets, where around €50tn of assets are held on behalf of investors, with the companies finalising transfers between customer accounts.

Euroclear said it would also disable its account at its Russian correspondent bank, Dutch group ING, effective immediately. Correspondent banking entails one bank providing services to another, often in a separate country.

Closing off other routes, Deutsche Börse suspended trading after Tuesday in all Russian bonds, individual securities and related structured products until further notice. The move was “for the protection of the public”, the German stock exchange operator said.

The latest moves to shut down trading in Russian assets come as the impact of sanctions opens up a gulf between the rouble exchange rate in domestic markets and levels traded by overseas investors.

On Tuesday, the rouble continued to slide in domestic trading following the previous day’s plunge. It was trading around 6 per cent lower at 100.2 to the US dollar, according to prices on the Moscow Exchange provided by Bloomberg. Brokers outside of Russia were quoting weaker levels of around 110 to the dollar, Bloomberg data show.

Western investors are no longer able to transact with Russian banks following US and European sanctions imposed at the weekend, while President Vladimir Putin on Monday banned Russians from exporting foreign currency abroad.

“We have de facto two separate markets: an onshore trading level and an offshore trading level,” said Cristian Maggio, head of emerging markets portfolio strategy at TD Securities. “Russia has been blocked off from international financial markets. They can’t buy and sell roubles to and from western banks and investors.” 

Despite the curbs on western investors’ ability to trade Russian assets, which have fuelled growing pressure on index providers to eject Russia, JPMorgan said on Tuesday that Russian debt would remain in its influential emerging markets bond benchmarks. In an update in response to the latest sanctions being imposed, the bank said it would exclude newly issued bond but there was “no change to the existing Russia bond compositions” in its indices.

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