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Industry roundup: 21 March

US Treasury permits Russian $117 million bond payments in dollars; Russia to open their stock market this week

Last week, Russia paid a US $117 million loan (a move to avoid defaults and in advance of its due date), and the US Treasury accepted the instalment. According to Reuters, correspondent JP Morgan received the payment and issued credit to Citigroup, the payment agent responsible for distribution to investors.

A Treasury spokesman told Bloomberg that US sanctions on transactions with the Russian central bank and other institutions will not prevent Moscow from making payments to Americans on dollar-denominated debt until midnight on May 25. However, Russia has previously stated that it will repay its external debt in rubles if it is not allowed to pay in dollars. Rating agency Fitch said investors are expected to be paid in dollars, which could lead to defaults if not in dollars. The $117 million interest payment on two-dollar bonds was a crucial test for a country whose credit ratings have recently been downgraded from investment grade to junk.

According to economists, this week's reopening of the Russian stock market is unlikely to cause widespread turmoil. Russia closed its stock market for three weeks due to concerns over a large sale and potential economic downturn due to the impact of financial sanctions and the sharp fall in the ruble (RUB). Reports indicate the opening of the market is certain to bring some sell-offs over the week, as Russia remains separated from the West and continues to seek intervention after the United States, Europe and Japan deprived Russia of access to SWIFT's global economic system. The Moscow Times reported last Friday that Russia's central bank would buy government bonds when it resumes trading, but it did not say how much it would spend to "limit the risks to financial stability."

Russian economist and current head of the Central Bank of Russia, Gov. Elvira Nabiullina, stated that they are ready to gradually resume trading on the Moscow Exchange, and trading will open for government bonds today. Additionally, she commented that “in order to neutralize excessive volatility and provide balanced liquidity, the Central Bank will buy government bonds."

Treasury and bond yields expected to increase further due to inflation uncertainties

Inflationary pressures caused by Russia's invasion of Ukraine are expected to raise interest rates on government bonds this week. The Philippines Bureau of the Treasury (BTr) will offer 15 billion Philippine pesos for Treasury securities (T-bills) on Monday or 5 billion pesos each in 91st, 182nd and 364th securities respectively. According to BTr, it will auction 35 billion pesos in 7-year government bonds (T-bonds) with a remaining period of 6 years and 4 months on Tuesday. Some bond traders speculate that T-bill yields could rise by 5 basis points (bps) this week, and 7-year T-bond rates could range from 5.35% to 5.55%. The US Federal Reserve's rate hike was as expected, but ongoing conflict between Russia and Ukraine also affects domestic inflation.

Michael L. Ricafort, Chief Economist, Rizal Commercial Banking Corp., said that T-bill yields could continue to rise this week as the secondary market surges weekly. Additionally, he said the US Fed's rate hike last week had already been priced by the market, along with Russia's continued invasion of Ukraine, which pushed up global oil and commodity prices.

Last week, the US Fed raised interest rates by a quarter percentage point for the first time since 2018 to combat rising inflation, and six more increases are planned for the rest of 2022. After Russia invaded Ukraine on February 24, global oil prices have skyrocketed, and inflation concerns are rising at home and abroad.

US Treasury officials observe slight surge in funding for illegal cryptocurrencies, but the transactions are small

A senior Treasury official stated that US authorities have observed an increase in the use of digital assets since Russia's invasion of Ukraine, promoting illegal financing, but transaction volumes are too low to play a major role in assisting Moscow in avoiding sanctions.

The US Treasury undersecretary, Nelly Liang, commented that current digital assets are not large enough to run the economy, and the ecosystem is underdeveloped for individuals to effectively avoid sanctions on such assets. Liang also stated that while illicit financing is growing due to the use of crypto, its share as a medium for illegal financing is not greater than the use of cash.

Earlier this month, US Treasury Secretary Janet Yellen vowed to fill a loophole in the severe sanctions imposed on Russia after the February 24 invasion of Ukraine. Additionally, money laundering prevention laws have been enforced to prevent members of the Russian elite from using cryptocurrencies to circumvent these measures. The Treasury Department, Justice Department and other agencies are directed to investigate the legal and economic implications of creating a US central bank digital currency and the role of cryptocurrencies in an evolving payment environment.

Australian government begins talks on including open finance in CDR

The Australian Treasury Department plans to extend its main competition policy, Consumer Data Rights (CDR), to include open finance. By definition, open finance aims to enable consumers to compare a wide range of financial products across the banking sector, such as insurance, annuities, merchant acquisition and non-bank loan providers.

The Treasury commented that the implementation of open finance can inform consumers in deciding which services to use from these sectors, as many consumers currently make decisions based on "rule of thumb" or shortcuts such as selecting a recognised institution or an institution with which they have an existing banking contract. Furthermore, the Treasury identified home and car insurance to be the top priorities when adopting open finance, especially in the insurance sector. As with previous CDR extensions, the open finance implementation involves a formal evaluation and designation process. The Treasury, as part of the consultation process, wants to receive general opinion from non-bank lenders about which datasets need to be covered with CDRs to drive the creation of new and innovative services.

According to the Treasury, information on energy products will be shared so that consumers can better compare their energy plans beginning in October 2022. Additionally, energy consumers will be able to provide consent to share their data about their own energy use and connect with a comparison service or fintech app commencing in November 2022.

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