Russia’s Private Pensions Begin Buying Up Corporate Bonds to Ease Pain of Sanctions

Last month, in a bid to stimulate its economy in the midst of Western sanctions, Russia directed its pension funds to buy up corporate bonds, some of which are considered “junk”.

Pension funds were understandably reluctant, but the buying process is now underway.

From Bloomberg:

As penalties over the conflict in Ukraine block access to capital markets, non-state pension funds are stepping in with funding for companies, according to Deputy Economy Minister Nikolay Podguzov.

The stranglehold of U.S. and European sanctions has limited borrowing abroad, forcing companies including oil producer Rosneft PJSC and Russian Railways to line up for assistance from the $75 billion Wellbeing Fund. Cue the private pension managers, who are now wielding 1.7 trillion rubles ($26 billion) in savings after recovering about a third of the industry’s assets when the government unblocked them last quarter.

[…]

Early indications are that pension flows are making some difference. Non-state pension funds bought 129 billion rubles of corporate bonds in the second quarter, the Finance Ministry said in a statement. That accounted for about a third of all corporate domestic debt sold in the period, according to Bloomberg calculations.

“At the end of the third quarter or in the fourth quarter, if the overall market situation permits, we will surely see pension funds investing in corporate bonds more actively,” Podguzov said. “The process would be more effective if it’s voluntary and mutually beneficial.”

The bonds have been performing well of late; Russian corporate bonds have returned 18 percent in 2015, according to the Bloomberg USD Emerging Market Corporate Bond Index.