Substitute bonds: foreign-currency income inside a rouble contour
beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
Substitute bonds appeared as the answer to a specific problem: holders of Russian issuers' eurobonds stopped receiving payments because the international settlement chain broke.
How it works
The issuer issues a new bond replacing the old one. Face value and coupon track a foreign currency while settlement runs in roubles at the official rate and through Russian infrastructure.
The holder gets foreign-currency economics without a foreign-currency settlement chain.
What it delivers
Protection against a weakening rouble: as the exchange rate rises, rouble payments increase.
Removal of the very infrastructure risk that produced the instrument — Restrictions and infrastructure risk: how it differs from market risk.
What to look at
The issuer's credit quality — it did not improve because the form of the issue changed.
Liquidity: issues can be small and the spread noticeable — Liquidity: noticed only once it runs out.
Taxation: currency revaluation creates income, and that has to be counted when computing the after-tax result.
The role in a portfolio
It is a way to hold currency exposure without leaving Russian infrastructure. Like any currency position it belongs in a size matching your future currency spending rather than your view on the exchange rate — Currency exposure: you have it even if you never opened it.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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