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Russian government bonds in your bond funds

edited April 18 in Other Investing
It would be a good idea to review the holdings in your emerging market local currency bond funds. Russian government bonds offer high yield over 7% but the sanction may change that.
In the face of a flurry of new US sanctions mostly aimed at the Russian Central Bank, Moscow had decided against holding on to its 2021 borrowing plans and had been exploring an option to offer only OFZ treasury bonds from June 14, the date after which US lenders would be barred from purchasing Rouble-denominated Russian sovereign bonds
https://financial-world.org/news/news/loans/7499/russia-hurt-by-new-biden-sanctions-slashes-2021-borrowing-plans-to-offer-ofz-bonds/

https://reuters.com/article/us-russia-debt/foreigners-share-in-russias-government-bonds-nears-five-year-low-as-sanction-fears-increase-idUSKBN2BH2GH

Comments

  • Owned PREMX (TRP) many years ago. I wonder if they'll be affected. Dunno what they're holding, these days. And that's not a local currency fund.
  • @crash,

    It is the Russian government OFZ bonds that you have to look for. US banks and brokerages will be forbid to buy these bonds, effectively cutting off foreign cash flow. Russian government bonds pay higher yield, over 7%, since they are not investment grade. They also carry considerably sovereign risk: default on debt payment and wars.

    Based on the annual reports of several EM local currency bond funds and they have some Russian bonds:

    1. Pimco Emerging market local currency bond, PELAX, 7.8%
    2. TRP Emerging market local currency bond, PRELX, 8.5%
    3. Vanguard Emerging market bond, VEMBX, 2.4%

    The non local currency emerging market bond fund, PREMX have 4.38% Russian Foreign Bond - Eurobond.

    Eurobond is a bond issued outside the home country of the issuer through an international syndicate and sold to investors residing in various countries. You should be okay for now.

  • edited April 18
    @Sven. Thank you for doing that homework. Interesting to read-up on that. I dumped PREMX years ago. Today, The EM risk is not worth the dividends, in my opinion. :).
  • Unfortunately the Fed is to blame to create the low yield environment. That makes life hard for income investors. Often this lead them to incur more risk than they realize in order to have higher yield : junk bonds, emerging market debts, and EM local currency debts.

    Sovereign risk is something to watch for when investing in developing countries. Political conflicts and wars are bad for investors. I invest a small % in PELAX just before 2008 and it took several years to fully recover the loss.
  • I sold TGTRX and its siblings 7 or 8 years ago after I found a 4% allocation to Ukrainian bonds !
  • edited April 19
    For whatever it might be worth, Ukranian bonds would attract me in a contrary fashion, just because by supporting their gov't, you're putting a bit of a burr under uncle Vladimir's saddle. He, of course, is a drippy, gaping orifice.
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