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Three Curves, One Sovereign: The Russian Foreign and Domestic Debt Macrofinancial Diagnostics

Posted: 29 Apr 2014 Last revised: 11 Sep 2014

Vilimir Yordanov


Date Written: September 10, 2014


The paper provides methodological and empirical analysis combined with practitioner oriented tools and policy prescriptions for a proper diagnostics of the yield curves of the sovereign bonds of the Russian Federation. Since the market consists both of Eurobonds and local ruble denominated treasuries in reference to a riskless benchmark, a simultaneous approach is the preferable one in building the curves, extracting the risky sovereign spreads, and considering them from a broad no-arbitrage and macrofinancial point of view. Having such allows not only to decompose formally the spreads into credit and currency ones but also to evaluate in a precise way the market efficiency and explore for possible arbitrage opportunities in a multicurve setting. The latter could have either a static or a dynamic character and provides views to market strategists in implementing relative value analysis. It has also importance for the policy makers in conducting optimal macro and financial policies. Another layer of complexity is added when along with the sovereign bonds the Russian CDS curve is considered. Related to the information from the bond market, the phenomenon of basis appears and we explore the arbitrage opportunities there again in a multicurve setting deviating from the standard single curve case by introducing the ruble curve to serve as an additional pillar. Finally, we pay attention in implementing the arbitrage trades to the issues of funding, the repo market efficiency, and counterparty credit risk. The research is novel both from a theoretical and empirical point of view and is implemented to the Russian bond market taking into consideration its specifics.

Keywords: yield curve, sovereign, Eurobond, treasuries, ruble, CDS, basis, credit spread, currency spread, OIS

JEL Classification: F30, E43, G12, G15, C58

Suggested Citation

Yordanov, Vilimir, Three Curves, One Sovereign: The Russian Foreign and Domestic Debt Macrofinancial Diagnostics (September 10, 2014). Available at SSRN:

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