Russia Assets Drop as Border Incident, Aid Report Spook Traders

(Bloomberg) — Russian stocks tumbled the most since March 2020 and a government bond auction was cancelled after reports of an incident on the border with Ukraine and separatist appeals for aid stoked concerns the crisis may escalate.

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The benchmark MOEX Russia Index slumped as much as 8.6%, while the dollar-denominated RTS Index slid 10%, making it the worst-performing gauge in the world on Monday. While all stocks slipped, Gazprom PJSC and Sberbank PJSC pressured the index the most, falling more than 8% each.

Meanwhile, the Finance Ministry axed Tuesday’s bond sale, citing “increased volatility on financial markets” as yields on 10-year ruble notes surged half a percentage point. The Russian currency sank as much as 1.8% per dollar, the biggest drop globally. Derivatives traders braced for further declines with one-month risk reversals showing the most bearish bets on the ruble since February 2015.

“Volatility is high because uncertainty still rules,” said Cristian Maggio, London-based head of portfolio strategy at TD Securities. “In the case of armed conflict, Russian assets will weaken substantially more than now.”

Russian forces killed five “saboteurs” and destroyed two Ukrainian armored personnel carriers that crossed into Russian territory in the Rostov region early Monday, the Interfax news service reported the Russian army’s Southern Military District as saying. Earlier, separatists in eastern Ukraine said they need military, financial and moral help from Russia, according to Interfax, citing the head of the so-called Donetsk Republic’s People’s Militia, Eduard Basurin.

Moscow continues to deny it plans to invade Ukraine, though the U.S. and its allies have disputed that.

Risk assets globally reversed gains earlier 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. The cost of insuring Russian debt has spiked to the highest level since 2016, credit-default swaps show.

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