(Bloomberg) — The ruble tumbled the most since March 2020 after President Vladimir Putin recognized self-declared separatist republics in east Ukraine, deepening a standoff with the West.
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The ruble weakened beyond 80 per dollar during Putin’s televised address to Russians late Monday and stocks slumped as much as 18% in evening trading. Earlier in the day, the benchmark MOEX Russia equity index closed its main trading session down 11%, the biggest drop since Russia’s annexation of Crimea in March 2014.
Russia’s stocks and the ruble were the worst performers globally on Monday. It’s unclear for now what Putin’s decision means for the risk of a Russian invasion of Ukraine that the U.S. and NATO have warned about for months. Russia has repeatedly denied such plans.
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“Uncertainty still rules,” Cristian Maggio, London-based head of portfolio strategy at TD Securities said before Putin’s address. “In the case of armed conflict, Russian assets will weaken substantially more than now.”
Earlier in the day, Russian state television showed a specially called meeting of Putin’s Security Council to discuss the issue of recognizing the regions just hours after the military said it had killed five “saboteurs” and destroyed two Ukrainian armored personnel carriers that crossed into Russian territory. Kyiv denied the claim.
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The turbulence prompted Russia’s Finance Ministry to cancel a bond sale planned for Tuesday, citing “increased volatility on financial markets” as yields on 10-year ruble notes surged almost 80 basis points.
The ruble closed down 3.1% at 79.78 per dollar, the weakest since November 2020. That’s near the range of 80-82 — a strong dollar resistance level tested four times in the last two years.
The 25-delta risk reversal on the Russian currency surged to 10.8%, the highest since 2015. That reflects the premium traders are willing to pay for a high-strike option — a weaker ruble — versus a low-strike option.
The cost of insuring Russian debt has spiked to the highest level since 2016, credit-default swaps show. The yield on Russia’s dollar bonds due March 2029, surged 52 basis points to 5.10%, their highest since the pandemic-fueled sell off in March 2020.
Earlier, risk assets globally reversed gains after the Kremlin threw into question the fate of a French proposal that seemed to offer fresh hope for averting an alleged Russian plan to attack Ukraine.
READ: Kremlin Cautious on Prospect of Biden-Putin Summit Amid Tensions
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