The secondary spreads of some CEE countries against Russia illustrate the impact of the crisis, and the potential for CEE sovereign spreads to slip.
Before the Crimea crisis, the Russian sovereign traded around 125bp inside Hungarian sovereign debt. At the height of the crisis, those levels had moved so that Russia was 80bp wide of Hungary. As the situation has slowly been diffusing over the last few weeks, Russia is now trading only moderately inside Hungary. Bankers say this indicates that there is still likely to be a further readjustment closer towards pre-Crimea levels.
That pricing dynamic has been similar for other countries in the CEE, such as Poland and Turkey. It has also been true of some countries in Latin America as well, as US investors looked closer to home for other EM opportunities, though the CEE looks like the biggest regional winner from the movement of investment away from Russia.
Russia is unlikely to return to trading 125bp inside Hungary, as these months of volatility have reminded investors of the unpredictability of the country. But Russia could still gain ground in the bond market, and head towards its more usual level against other EM countries.
This relative value correction may be caused by CEE countries such as Hungary widening, as well as Russia tightening, as investment flows out of its CEE havens and returns to Russia.
The correction may be less overt than that. It is possible that the change in appetite will be more visible in smaller book sizes for new deals from the CEE, and higher new issue premiums, rather than a secondary market sell-off.
But for CEE issuers the time to cash in on Russia risk aversion could be coming to a close.