The Potential Return of Russia to Financial Markets: What Lies Ahead?

In recent weeks, traders at a London-based financial firm have been searching for Russian debt, focusing on dollar-denominated bonds that attract interest from family offices in the Middle East for investments. They found that Gazprom bondholders were either unwilling to sell or demanded significantly higher prices, according to two traders who wished to remain anonymous. This combination of limited supply and increasing demand helped reduce yields on Russian dollar and euro bonds by about 5 percentage points in February, estimated one of the traders. These trades indicate that investors are quietly betting on the possibility that approaches by U.S. President Donald Trump towards Moscow for a peace deal in Ukraine could lead to Russia’s return to global financial markets. According to Bloomberg, buyers bet that these deeply undervalued assets will soar if sanctions imposed on Russia after its invasion of Ukraine in 2022 are lifted. Investors understand that discounts will vanish once relations are restored, said Iskander Lutsco, head of research and portfolio management at Istar Capital, an investment firm and wealth manager based in Dubai with approximately $1 billion under management. Fund managers report receiving approaches from Wall Street sales teams exploring interest in ruble bets through non-deliverable forwards (NDFs) – derivatives that do not include any physical Russian asset or individual, thus avoiding sanctions. The Russian currency has strengthened by 13% against the dollar since the start of the year, according to data from the Bank of Russia. Goldman Sachs and JPMorgan Chase are among the banks acting as intermediaries to facilitate growing investor demand for ways to trade Russia-related assets, stated individuals familiar with the matter. Despite these movements, significant geopolitical risks remain. Hundreds of billions of dollars in trading and investment opportunities hinge on the easing or lifting of U.S. and allied sanctions. However, these bets carry multiple risks, including reputational risks for moving too early and legal risks if sanctions are not lifted or are reinstated later. Trump warned he is ‘looking closely’ at new banking sanctions against Russia while preparing for negotiations to end the conflict. On March 7, American envoy Steve Wetkoff is expected in Moscow for discussions regarding a proposed 30-day ceasefire. Even if Trump manages to stop the fighting, an unstable, heavily armed frontline and the risk of renewed war remain if Putin sees an opportunity to subjugate all of Ukraine or if Kyiv attempts to retake occupied territories. Europe intensifies plans for additional defense spending up to €800 billion ($870 billion). These tentative moves back into Russian trades occur in a politically unstable environment. Since January, Trump has reversed U.S. relations with Ukraine and Russia, promising to quickly end Putin’s war. What Moscow needs most is for the U.S. to lift at least some bank restrictions to ease dollar trade. This would help overcome growing cross-border payment difficulties for Russian businesses. However, major obstacles stand before Russia’s return to the global stage. Three years of war have undone three decades of deeper Western involvement post-Soviet collapse, reshaping Russia’s economy and outlook. The widening gap between the U.S. and Europe over Ukraine’s defense—a side effect of the Trump-Putin approach—threatens the worst rupture in relations since World War II and may signal a fundamental restructuring of global power.