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 Although the rouble fell sharply on Monday and bond yields rose,
analysts said that the immediate implications of the downgrade were
limited, as the move was largely priced in and other major agencies
still rate Russia above junk.
Bond yields on Russian Eurobonds did edge higher on Tuesday,
however, as did the cost of insuring exposure to Russian debt.
At 0925 GMT, the rouble was around 1.6 percent stronger against the
dollar at 67.69 and gained 1 percent to trade at 76.47 versus
the euro.
The rouble had fallen 6 percent on Monday, with around half the loss
following S&P's downgrade in the evening.
Russian assets had already fallen sharply before the decision
because of renewed fighting in Ukraine and the threat of fresh
Western sanctions against Russia.
S&P cut Russia's rating from BBB- to BB+, citing Russia's weakened
economic growth prospects, hit by low oil prices and Western
sanctions over the Ukraine crisis.
Two other major ratings agencies, Moody's and Fitch, are yet to
downgrade Russia to below investment grade.
"If the other agencies also cut Russia to junk status in the coming
months, a move that is now also widely anticipated, then we may see
some selling pressure from investors prohibited from owning
sub-investment grade debt," said Chris Weafer, senior partner at
Macro-Advisory consultancy in Moscow.
"But ownership of Russian assets by such low-risk investors is quite
small now as most sold out of Russia last year as the Ukraine crisis
escalated, the economy slowed and the oil price fell," he said.
ROUBLE SUPPORTED
The rouble was seen supported by exporters selling foreign currency,
which they have been doing at regular intervals after the government
pressured them to do so to help the Russian currency.
Russian share indexes were mixed, largely swayed by the rouble
moves. The dollar-denominated RTS index was down 0.8 percent to 775
points, while the rouble-based MICEX was 1.4 percent higher at 1,664
points.
Unlike the foreign exchange market, Russia's stock exchange was
closed on Monday evening, so the impact of S&P's decision was priced
in today.
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Bond yields on Russia's benchmark 2030 Eurobond rose by 9 basis
points to 7.38 percent on Tuesday, after rising almost 40 basis
points on Monday.
Russian dollar bond yield spreads over safe-haven U.S. Treasuries
widened by 13 basis points to the highest level since mid-December.
The downgrade leaves Russia in 'junk' territory for the first time
in a decade, which could push up its borrowing costs as many
mainstream investment and pension funds have rules preventing them
from buying anything not classed as investment grade.
One positive was that S&P maintained Russia's investment grade
rating on local currency sovereign bonds, in which government debt
is mostly issued, said Neil Shearing at Capital Economics in a note.
Jochen Wermuth, chief investment officer at Wermuth Asset
Management, however, said the long-term effects for Russia could be
more serious.
"While the 'smart money' may have anticipated a downgrade, there
will be a difference like day and night between being an investment
grade country or not for debt and equity markets."
For rouble poll data see <FXRUB> <FXEURRUB> <FXRUS>
For Russian equities guide see <RU/EQUITY>
For Russian treasury bonds see <0#RUTSY=MM>
Russia in graphics: http://link.reuters.com/dun63s
(Editing by Jason Bush and Giles Elgood)
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