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  • Writer's pictureRyan Lynch

Russian Bond - Revisited!


MOIC - 07 February
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While we published a commentary to this paper in November 2021; it was originally written in 2019, amidst a much more sanguine era, both in markets, macroeconomically, and geopolitically.


Within our analysis we found that a positive shock to oil price volatility is causal to changes in Russian bond-yield premiums on the order of 300-400 bps and lasts for roughly two months. Within the analysis we controlled for market liquidity & volatility, sovereign credit ratings and nominal oil price as control variables.


Where our research was lacking and is a further area of study we are undertaking - was a deeper dive into the cross-commodity risk, namely in the context of today, LNG, Wheat, Potash and other fertilizers associated with the Russian economy. Additionally, we will, in the months to come, be expanding on the effect of inflation (domestic in the Russian Federation subject to data), and how this variable may be effectual to further risk causality changes.


Here today, we simply are publishing a couple graphs to contextualize our findings, in order to understand if our historical process is a relevant barometer for risk capital deployment today. We find, by plotting the risk spread (Russian 10Y – UST 10Y) against Oil Price Volatility, both transformed via natural logarithms (to understand dynamism and constant growth functions), there is a positive correlation. We acknowledge the difference in bond constructs (UST as couponed RF as Zero-coupon), however this is outside of our scope today.


This indicates validity of our findings on a micro-applied level using daily pricing, with the current outlook on energy and geopolitics, the bond market might look quite interesting in the weeks to come…..




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