S&P cuts Russia debt rating on par with Azerbaijan

Russia’s sovereign debt rating was cut to the lowest investment grade at Standard & Poor’s, which said further downgrades are possible if economic growth deteriorates and the conflict in Ukraine sparks wider sanctions.

S&P cut Russia’s rating one step to BBB-, it said in a sttement today. The grade, on par with Brazil and Azerbaijan, has a negative outlook. S&P last downgraded Russia in December

2008. Russia’s currency and bonds fell.

“The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in the statement.

The U.S. and its allies have a list of additional sanctions ready and will enact them if there is no progress de-escalating the crisis in Ukraine, where security forces are moving against pro-Russia separatists in the country’s east, U.S. President Barack Obama said yesterday in Tokyo. Last month, Russia was placed on review for a downgrade by Moody’s Investors Service and Fitch Ratings cut its outlook to negative.

Russia’s dollar bonds due April 2020 fell for a fifth day, lifting the yield 13 basis points to 4.90 percent, the highest since March 17. The ruble weakened 0.6 percent against the dollar to trade at 35.9800 at 11:28 a.m. in Moscow. It has declined 8.6 percent this year, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg.

Investors routinely ignore ratings companies’ decisions. In almost half the instances, yields on government bonds fall when a rating action by Moody’s and rival Standard & Poor’s suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August 2011, bonds rose and pushed Treasury yields down to records.

The downgrade was expected by investors and won’t significantly change their behavior, Russian Economy Minister Alexei Ulyukayev told reporters today.

Russian President Vladimir Putin told reporters in St. Petersburg yesterday that “sanctions are not effective in the contemporary world and are not bringing the desired outcome.”

Bakudaily.az