By Andrey Ostroukh and Karin Strohecker
MOSCOW/LONDON (Reuters) - The prospect of President Vladimir Putin staying in the Kremlin until 2036 does not seem to be deterring buyers of Russia's high-yielding sovereign bonds as investors focus on economic fundamentals and political stability rather the risk of policy stagnation.
Investors in Russia are no strangers to shocks, having seen the country's markets roiled in recent years by sanctions and oil price collapses.
Yet very little of this has taken the shine off rouble-denominated government debt - so-called OFZs - thanks to the Russia's low indebtedness, prudent monetary and fiscal rules and the world's fourth largest FX reserves.
Now, constitutional changes that could extend the rule of Putin, who has been in power since 2000, as well as Moscow's plans to funds its post-pandemic recovery program have shone a fresh spotlight on the $135 billion OFZ market.
Few investors have expressed concern about Putin - who will turn 84 in 2036 - staying in power for so long, though this is not unusual for emerging markets where many prefer the stability of long-standing rulers to the ebb and flow of frequent policy change, as long as fiscal policy is sound.
"It's mixed news - on one hand you are always concerned when a leader is extending his time in office by hook or crook," said Kevin Daly, senior investment manager at Aberdeen Standard Investments in London, whose firm holds OFZs.
"On the other hand you have to give credit where credit is due in terms of the fiscal management under his (Putin) leadership, which has been prudent."
Foreign investors currently hold $43 billion worth of OFZs or around a third of sovereign rouble bonds.
Many enjoy the carry trade when they borrow dollars cheaply, convert them into roubles and invest in OFZs with yields of around 6% on a 10-year horizon <RU10YT=RR>.
Russian interest rates are well above those measured by JPMorgan's widely-tracked Government Bond Index Emerging Markets Global Diversified which hit an all-time low of 2.65%, according to analysts.
Graphic: Government bond yields of Russia, Brazil, Mexico and the United Statess https://fingfx.thomsonreuters.com/gfx/mkt/rlgpdladnpo/GOVT%20bonds.jpg
And in a world where interest rates have plunged ever lower as policymakers around the globe try to kickstart economies flattened by the coronavirus pandemic, this is an attractive play for many.
"Russian bonds are the only bonds I would buy now because they have high interest rates," veteran investor Jim Rogers, who has invested in OFZs, told Reuters.