Russians bonds can now be settled via Euroclear Bank

Euroclear Bank has begun clearing and settlement for Russian ruble-denominated OFZ government bonds – a market worth $100 billion, according to figures fromby Baring Asset Management.

Beginning with OTC-traded OFZ bonds, Euroclear plans to expand the scheme to cover exchange-traded OFZs by March and other Russian fixed income securities in the coming months. It is providing its post-trade services via its membership at Russia’s central securities depository NSD.

“The 7 February milestone marks a new era in the ability of Russia to fund its growth and development through the international capital markets,” said Frederic Hannequart, chairman of Euroclear Bank. “Industry experts are predicting new foreign capital inflows to Russia in the region of $20 billion. Euroclear Bank is proud to become part of the new Russian financial centre by making OFZs eligible for Euroclear Bank services.”

Buy-side firms have welcomed the latest move in government bonds. According to Baring Asset Management, yields on Russian treasuries are likely to fall due to the arrival of direct settlement, reducing the cost of capital for Russian corporates and the government. The company’s figures reveal that during the last eight months, the yield on long-dated OFZ bonds has already declined by over 200 basis points.

“In our view, this liberalisation, which forms part of a long-awaited upgrade of Russia’s financial markets, is a step in the right direction, primarily in generating anticipated wider participation from foreign investors,” the company said in a statement.

The Russian government has pushed hard in the last 18 months to achieve its goal of turning Moscow into an international financial centre. The merger of the RTS and MICEX exchanges at the end of 2011 was a key part of that plan, as was the creation of a central securities depository, NSD, in November 2012.

Meanwhile, western investment firms and technology providers have been keen to access Russian securities markets. In January, technology and connectivity provider TMX Atrium opened a new high-speed route from Frankfurt to Moscow, targeted at international investors that want to be able to trade Russian markets more easily.