Situation on the ground

• A draft plan of 15 points including a cease-fire, the removal of Russian troops and Ukraine military neutrality is close to being finalised, according to sources. However, many sticking points remain in place and the final agreement unfortunately may not be imminent.
• The proposed deal supposedly involves Kyiv renouncing its NATO ambitions and not hosting military bases or weapons in exchange for stronger guarantees of protection from its allies such as the US, UK and Turkey.
• A 1994 agreement where Ukraine gave up nuclear weapons in exchange of foreign protection was already violated by Russia and the US and UK did not offer any direct support neither in 2014 nor 2022.
• The main sticking points remain the Russian demand that Ukraine accepts Crimea as Russian territory and the Donbass as a separate independent region. A senior adviser to President Zelensky said that territorial disputes will be considered on a second stance.
• Meanwhile, Russian troops continue to make progress in Ukraine and are now surrounding Kyiv.
• There have been several reports of Russian drones flying between NATO countries and Ukraine as Russians investigate and target West armaments sent to Ukraine.
• Russia has requested the US to stop sending weapons to Ukraine.
• President Vladimir Putin said Russia survived the West’s ‘economic blitzkrieg’ and that the private sector will be key to overcoming the current economic crisis. He announced an increase in social payments, benefits and state wages. Putin explained that Russia is fighting for its sovereignty and future and that the West is trying to drive wedges in the Russian society.
• China reported to the US that Russia requested drones from them before the invasion. China is trying to distance itself from the conflict as the Chinese Ambassador to the US, Qin Gan published an opinion piece saying had China known about the imminent crisis, she would have tried her best to prevent it. Qin also said the sovereignty and territorial integrity of all countries, including Ukraine, must be respected.

Market update

• JP Morgan confirmed that Russia will drop from all fixed income indices (sovereign, corporate and local currency) at the end of March with a zero weight across bonds. This is an unprecedented move since JP Morgan exclusions are typically implemented on a multi-month time period.
• Russia’s weight was 0.4% in the EMBI GD (Sovereign), 0% in the GBI-EM GD (local currency), and 0.9% in the CEMBI (Corporate), representing a 75% drawdown for Russia bonds and 100% for local currency bonds, as of March 11.
• It looks very likely that JP Morgan will remove Belarus from sovereign debt indices (EMBI family) on 31 March. The country was on index watch since 7 Dec 2021 and is now under review for removal after the latest EU sanctions.¹
• The decision is related to the fact that liquidity has significantly dropped across Russian assets since foreign investors and banks are uncomfortable trading these assets given the severe sanctions imposed on the country, even though secondary market trading in existing securities have not been sanctioned so far.
• Russia has a USD-denominated Eurobond coupon payment due today on a bond issued before the 2014 sanctions (identified by the ‘XS’ ISIN). Russia has started the process of paying the coupons, but the finance ministry did not say whether it would be in dollars or roubles.
• Concerns over a technical default due to re-denomination intensified after Putin signed a decree saying creditors from “countries that engage in hostile activities” can only be paid interest and principal payments in roubles. We will know more tomorrow, but there is a 30-day grace period on the coupon payments, so a technical default would occur only after 15 April.

^{1. See https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2022:082:FULL&from=EN}