Russian forces started a full-scale military operation in Ukraine. This took markets by surprise. In a televised address Putin stated that Russia had no plans to occupy but demilitarize Ukraine. Russian forces attacked cities across Ukraine and landed troops on its south coast. Haven assets including US treasuries rallied, with interest rate hike risks overshadowed by geo-political concerns. 10-year treasuries are currently at around 1.91%, S&P futures are down 1.98% and DXY is up at 96.64 up 0.5% on haven buying. US equities finished lower on Wednesday with Dow Jones losing 1.4% to 33,131.76, S&P declining 1.8% to 4,225 and Nasdaq plunging 2.6% to 13,037. The focus today will be on reports and analysis of the extent of military action in Ukraine and the response from the West. President Biden said he would impose “severe sanctions” on Russia. Wednesday’s economic calendar was relatively quiet with mortgage applications falling amid recent spike in interest rates. The initial jobless claims today are forecasted to show 235,000 and GDP is expected to be revised higher to 7% expansion.
Russian markets nosedived with stocks collapsing more than 45%, their biggest ever retreat, and Russian rouble sinking to a record low of 85.12, as military attacks across Ukraine prompted emergency central bank action and investors are bracing themselves for the toughest Western sanctions yet. While trading on Moscow exchange has been halted, Russian equities continued losing value on exchanges abroad. Sberbank was hit the most shedding more than 70% of its value, VTB lost more than 30%. The CDS on spread of 5-year Russia is up at 746.27. Russian bonds plummeted, pushing into distress territory with Russia 47s plunging to the low of 72.77%. Bank of Russia said it will intervene in the FX market for the first time in years and take measures to tame the volatility. So far, Russian Central Bank did not mention raising interest rates but said it will provide additional liquidity by offering 1 trillion roubles.
Bunds opened firmer following military escalation on the Russia/Ukraine front with 10Y DBRs touching a low of 0.136%, having closed at 0.228% on Wednesday. Peripherals also opened firmer with 10Y BTPs touching a low of 1.792% having closed at 1.855% on Wednesday. January CPI came as expected at 0.3% up for the month and 5.1% for the year. Main European bourses at least 3% lower in early trading with the DAX leading losses down 3.8% at 08.15GMT.
As Russia, Ukraine tensions continue to take centre stage at the moment, SSA seems to bear the brunt as most investors look to de-risk their hold on majority of their SSA holdings. The selloffs we witnessed yesterday has continued into today’s trading with the entire SSA curve down by an average 2pts so far. As suspected GHANA looks worse off with their curve already looking quite inverted now. The GHANA 8 ⅛ 01/18/2026 REGS Corp kicked off the day as the major loser on the curve as yields have moved up c.120bps from its closing levels of 16.22% the previous day and currently at 17.87%. Unlike GHANA’s short end which seems to be suffering more, NGERIA’s long end of the curve is taking the most beating this morning with their prices down almost 3pts so far. Yields on the long end (NGERIA 8 ¼ 09/28/2051 REGS Corp) have shut up c.30bps from its closing levels of yesterday at 9.60%. There is no clear indication of how long the sell offs will last but already the likes of Nigeria have already suspended plans for a $4bn Eurobond issue now all attention will turn to Angola to see if their expected issue this Q1 is called off or not given the cost it would take to raise funds in a harsh/high interest rate environment.