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Ruble Sinks Most in Two Years as Putin Recognizes Separatists


(Bloomberg) — Russian stocks tumbled the most in eight years as President Vladimir Putin said he’ll make a decision Monday on whether to recognize self-declared separatist republics in east Ukraine backed by Moscow.

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The benchmark MOEX Russia Index closed down 11%, its biggest drop since March 2014 when Russia’s annexation of Crimea soured relations with the West and unleashed rounds of sanctions. On an intraday basis the index fell more than 14% — the most since November 2008.

Stocks and the ruble were the worst performers globally and the Finance Ministry cancelled a bond sale planned for Tuesday, citing “increased volatility on financial markets” as yields on 10-year ruble notes surged almost 80 basis points.

“Uncertainty still rules,” said Cristian Maggio, London-based head of portfolio strategy at TD Securities. “In the case of armed conflict, Russian assets will weaken substantially more than now.”

Russian state television showed a specially called meeting of Putin’s Security Council to discuss the issue just hours after the military said it had killed five “saboteurs” and destroyed two Ukrainian armored personnel carriers that crossed into Russian territory. Kyiv denied the claim.

The leaders of the so-called Donetsk People’s Republic and Luhansk People’s Republic earlier appealed to Putin to recognize their independence from Ukraine and conclude a treaty on defense.

A move to recognize the separatists would likely torpedo European-mediated peace talks and further escalate tensions with the West. Moscow continues to deny it plans to invade Ukraine, though the U.S. and its allies have disputed that.

The ruble was trading down 2.2% at 79.0500 per dollar as of 7:21 p.m. in Moscow, near the range of 80-82 per dollar — a strong dollar resistance level tested four times in the last two years. The 25-delta risk reversal on the Russian currency surged to 10.8%, the highest since 2015. That reflects the premium traders are willing to pay for a high-strike option — a weaker ruble — versus a low-strike option.

The cost of insuring Russian debt has spiked to the highest level since 2016, credit-default swaps show. The yield on Russia’s dollar bonds due March 2029, surged 52 basis points to 5.10%, their highest since the pandemic-fueled sell off in March 2020.

Earlier, risk assets globally reversed gains after the Kremlin threw into question the fate of a French proposal that seemed to offer fresh hope for averting an alleged Russian plan to attack Ukraine.

READ: Kremlin Cautious on Prospect of Biden-Putin Summit Amid Tensions

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