PrefBlog

The Russian Central Bank has come up with a novel bank recapitalization technique:

Russia’s central bank is exacerbating the ruble’s 34 percent plunge since August, even as it struggles to defend the exchange rate, by providing loans to banks that speculate on the currency, say Alfa Bank and UniCredit SpA.

Bank Rossii lent 7.7 trillion rubles ($214 billion) in overnight and seven-day loans secured with bonds or other collateral in the 16 trading days last month, about double the 4.8 trillion rubles provided in so-called repurchase auctions in December, central bank data show. Banks used “almost all” the money to bet against the ruble, said Natalia Orlova, chief economist at Alfa, Russia’s largest non-government bank. The ruble fell 18 percent against the dollar in January.

“A significant amount, if not all, of the speculative attacks on the ruble are funded by the central bank itself,” said Vladimir Osakovsky, Moscow-based economist for UniCredit, Italy’s largest bank.

Across the Curve believes that Treasury issuance is going to lead to higher government bond yields in the near future.

PerpetualDiscounts edged slightly lower today. Market volume was reasonable, but dominated by the recent Fixed-Reset issues.

This entry was posted on Thursday, February 5th, 2009 at 8:57 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.