Investors Make Risky Bet on Russia's Return to Financial Markets

The Trump Administration's position towards Russia and the potential for a ceasefire in Ukraine has some investors eyeing opportunities in a re-opened Russian economy. But will their bet pay off? Bloomberg's Tony Halpin reports.

Traders at one London brokerage have been scouring the financial world in recent weeks for an asset almost untouchable for the past three years: Russian debt. They have been racing to find owners of dollar-denominated bonds issued by Gazprom to meet demand from Middle Eastern family offices.

They quickly found the Russian energy behemoth’s bondholders were either unwilling to sell or demanding significantly higher prices, according to two traders who spoke on condition that neither they nor the firm were identified because of the sensitivity of the transactions. This combination of limited supply and growing demand helped to drive down yields on dollar and euro-denominated Russian bonds by about five percentage points in February, one of the traders estimated.

The transactions — revealed here for the first time — are among the clearest indications yet that investors are quietly betting that US President Donald Trump’s overtures to Moscow for a deal to end the war in Ukraine will eventually translate into Russia’s return to the global financial markets. The buyers are wagering that the deeply discounted securities could soar in value if the sanctions imposed on Russia after its invasion of Ukraine in 2022 are lifted.

Investors “understand that as soon as there’s a thaw, these discounts will collapse,” said Iskander Lutsko, Dubai-based head of research and portfolio management at Istar Capital, an investment firm and wealth manager with about $1 billion under management.

Money managers, too, say they are receiving approaches from Wall Street sales teams gauging their interest in making bets on the ruble through non-deliverable forwards — derivatives that because they don’t involve a physical Russian asset or individual person aren’t subject to sanctions. The Russian currency has gained 13 percent against the dollar since the start of the year, according to Bank of Russia data.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among banks that have been acting as brokers to facilitate growing investor demand for ways to trade Russian-related assets, people familiar with the matter said.

“There’s an aggressive search for securities of Russian issuers around the world,” said Evgeny Kogan, a Moscow-based investment banker who runs his own advisory firm. “Investors in general are asking how quickly they can enter the Russian market.”

Both sides of the bet represent a massive geopolitical gamble. At stake in the rehabilitation of Russia are hundreds of billions of dollars in trade and investment opportunities through the easing or removal of sanctions by the US and its Group of Seven allies. President Vladimir Putin’s attempts to lure Trump with potential joint US-Russia projects are only adding to the fervor.

But these wagers come with multiple risks — reputational if an investor or company moves too early to restore ties with a country responsible for Europe's largest conflict since the Second World War; and legal, if sanctions aren’t lifted or are later re-imposed. On March 7, Trump warned he was “strongly considering” fresh banking sanctions on Russia while still preparing to negotiate to end the conflict.

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