Situation on the ground

• The Russian military advance on Kyiv continues with recent negotiations between the two parties producing only an elusive agreement on further negotiations.
• The situation on the ground in Ukraine has deteriorated with Russian forces intensifying the shelling of cities in order to stoke fear and lower the morale of the population. The war is likely to escalate significantly over the next days/weeks. Satellite images shows a 40-mile convoy of Russian vehicles heading towards Kyiv.
• China now appears to be willing to play a more active role in realising a ceasefire, according to latest reports.

Market update

• Meanwhile, Western powers look set to reach agreement on sanctions, with the EU in particular rumoured intent to exclude from the SWIFT financial-messaging system a number of Russian banks (e.g. VTB Bank, Sovcombank and VEB.RF; apparently Sberbank or Gazprombank are not included at present). We await further clarification on the details of the sanctions.
• The Central Bank of Russia has confirmed that Russian brokers are restricted from trading with international investors, effectively shutting local currency debt markets. Trading in the RUB NDF market continues but liquidity is challenged. The central bank also later seemed to clarify an instruction from President Putin banning payments of hard currency coupons to foreigners to include only new loans but details remain scant. Similarly, press reports point to an instruction of the central bank to depositaries to suspend coupon payments on local currency debt to foreigners but markets await official confirmation.
• The Russian Prime Minister said the Sovereign Wealth Fund would buy USD 10bn of local stocks, leading to hopes that the local equity market will reopen tomorrow, after two days of closure.
• The Ukrainian Finance Minister held a call with investors and said the next coupons and principal will be paid, with current liquidity at the Treasury amounting to c. USD 1bn while more support is being sought from multilateral institutions. Ukraine today paid $300m in coupons due on its Eurobonds (and simultaneously raised close to $280m in a war bond).
• Trading continues in hard currency Russian / Ukrainian sovereign and corporate debt but liquidity remains severely challenged; conversely, local currency markets are shut for the time being.
• The Russian stock market remained closed today to investors, local and foreign trading of Russian depository receipts was mixed. In general, American listed ADRs did not trade nor did US listed Russian stocks. London listed ADRs and GDRs did in general trade but saw sharp selling pressure.  

Index update

• On the fixed income index front, JPMorgan has clarified its position on Russia within the suite of EM indices, notably acknowledging that new debt from sanctioned Russian entities will not be eligible for inclusion from March 1. Furthermore, specific corporate and quasi-sovereign issuers are under review for removal by month end. The inclusion of Ukraine into the local currency indices will be suspended until further notice.
• On the equity index side, MSCI continue to hold consultations (including with Ashmore) on the potential delisting of Russian stocks from the index. The index provider is following due process and the timeline for any potential decision is unknown.