At the risk of finding something radioactive in my sushi, the escalating tension between Russia and the UK makes me nervous about the amount of issuance of capital (both equity and bonds) out of the former Soviet republics. Credit risk is not just about ability to repay a debt, but also about willingness to repay and it should take into the account to ability to take legal action to recover money due. And the yields on offer aren’t even that attractive at the moment – for example, Russian government credit risk trades at just 45 bps in 5 year CDS and Gazprom at 65 bps. Would it have been appeasement to have turned a blind eye to the failure of Russia to extradite one of its nationals to face trial in the UK, or would it have just been realpolitik
? After all, if it leads to a trade war with Russia, I feel like the UK is in a similar position to the East Africans armed with spears when faced with the British army’s Maxim gun
in the 1893 war. To paraphrase Hilaire Belloc’s famous jingle of the time:
Whatever happens, they have got
The oil and gas, and we have not.