Devaluation of the Ruble: Can Russians Protect Themselves?

There are four types of bonds that could help Russians hedge against ruble devaluation. For instance, experts recommend substitution and dual-currency bonds—financial instruments denominated in foreign currencies (most commonly USD or CNY) but paying returns in rubles at the Central Bank's exchange rate on the payment date. This was explained by analyst Evgenia Nesterenko in an interview with RBC.

These bonds could serve as an attractive alternative to holding cash, which generates no income. The face value of such securities is typically accessible to a wide range of investors, making them more appealing compared to eurobonds from previous years.

"Often, the face value of such bonds is \,000 or ¥1,000, which is far more accessible to the average investor compared to the era when eurobonds (exclusively foreign-currency instruments) were widespread a few years ago," Nesterenko shared.

However, the expert warned of the risks involved. A strengthening ruble could negatively impact the returns on foreign-currency bonds. Therefore, when choosing a currency for investment, it is crucial to consider the geopolitical climate and realistically assess the prospects of the currency market. She advises against allocating more than 40% of an investment portfolio to such instruments.

The yield on foreign-currency bonds consists of two components: coupon payments and exchange rate dynamics. For long-term investments, both factors work in the investor's favor, while for short-term investments, fluctuations in currency rates play a significant role.