The price of Belarus’ seven-year Eurobonds dropped from 91.57 to 89.24 percent of the face value at the Stuttgart Stock Exchange on Tuesday, driving the bond yield up to 14 percent.
The price drop followed a decision by Standard and Poor’s to downgrade Russia’s credit rating to junk status on Tuesday evening, bringing it below investment grade for the first time in a decade. The agency’s move will make it harder for Russia to borrow money from investors.
“Russia’s monetary-policy flexibility has become more limited and its economic growth prospects have weakened,” S&P said in a statement.
The Russian ruble dropped even further against the US dollar in the wake of the announcement, falling by 7.5 percent in late trading in Moscow. The Belarusian rubel simultaneously lost 1.4 percent of its value against the dollar.
Russian corporate Eurobonds also became cheaper as the country lost its investment-grade credit rating. Belarusian companies have never issued any Eurobonds. However, the Development Bank of Belarus earlier announced plans to raise at least $500 million through a Eurobond sale in 2015. In addition, the government was expected to issue a $1-billion Eurobond this year.
The Eurobond yield, which roughly reflects the interest rate the government would have to pay to borrow new money, has risen sharply amid the rapid depreciation of the Belarusian rubel in December 2014.
Experts predict that the unfavorable economic situation will discourage the Belarusian government from floating new Eurobond issues any time soon.
In the summer of 2010, Belarus issued a $1-billion Eurobond. In January 2011, the country raised $800 million via a new Eurobond sale. The government has not issued new Eurobonds since then, despite describing Eurobond sales as one of its means of obtaining external funding.
