(Bloomberg) -- The technocrats who run Vladimir Putin’s Finance Ministry know well that the next geopolitical crisis could be just around the corner. This year they’re preparing early for potential turbulence, stockpiling cash while times are good.
The ministry borrowed more than $7.2 billion so far in March through local-currency and Eurobond sales, almost four times the monthly average in 2018, capitalizing on a recovery in demand among foreign investors. Finance Minister Anton Siluanov said on Friday that the huge amount raised gives the country room to start trimming sales in the local market.
Russia is running the widest budget surplus in a decade, so doesn’t actually need to sell bonds, but the bumper borrowing now could be a precautionary move against potential U.S. sanctions later in the year. A bill under discussion in Congress proposes banning American investors from taking part in sales of Russian sovereign debt to punish Moscow for alleged election interference, among other things.
“The recent spate of bond sales is an opportunistic strategy to build reserves for more rainy days in the future,” said Per Hammarlund, chief emerging-markets strategist at SEB AB in Stockholm.
A move by the Finance Ministry to abandon the practice of giving targets before bond sales allowed it to take full advantage of a surge in appetite for emerging-market debt this year as the Federal Reserve took a softer line on the outlook for rate hikes.
Foreign inflows into Russian bonds have been the main driver behind a roughly 9 percent surge this year in the ruble, the biggest rally among major emerging-market currencies, central bank chief Elvira Nabiullina said Friday.
Yields on Russian Eurobonds maturing in 2028 dropped below 4.6 percent last week for the first time since July. On March 21, Russia sold $3 billion in Eurobonds, its largest placement since before sanctions were first imposed in 2014.
The money Russia raises in bond sales goes toward general budget purposes and to finance infrastructure projects the government is using to try to boost economic growth. The Finance Ministry was forced to halt bond sales through the whole of September as borrowing costs surged due to fears that sanctions were imminent. It turned out to be a false alarm.
Russia has enough money saved to allow it to skip borrowing for two years, Konstantin Vyshkovsky, the head of the Finance Ministry’s debt department, said in an interview in December.
“Russia does not really need this money for the time being, given the current level of the oil price and the prudent management of the budget,” said Sebastien Barbe, head of emerging markets research at Credit Agricole CIB. “But they may need it if the oil price moderates for one reason or another later on.”
--With assistance from Olga Voitova, Anna Andrianova and Artyom Danielyan.
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