MAR 2022

“Ukraine is not just a

neighbor. It is an inherent
part of our history, culture
and spiritual space.”
President Vladimir Putin
(on February 21, 2022)

Russia–Ukraine / MAR 2022 / page 2

Global Corporate & Investment Banking
Capital Markets Strategy Team

Tom Joyce Hailey Orr Stephanie Kendal

Managing Director Director Associate
Capital Markets Strategist Capital Markets Strategist Capital Markets Strategist
New York, NY New York, NY New York, NY

[email protected] [email protected] [email protected]

(212) 405-7472 (212) 405-7429 (212) 405-7443
Contents

1 Situation Analysis
2 Military Backdrop
3 Global Sanctions Response
4 Policy Implications
5 Economic Implications
6 Market Implications
1 Situation Analysis
 The Post Cold War Era is Over
BERLIN WALL FALLS RUSSIA INVADES UKRAINE
November 9, 1989 February 24, 2022

Nominal GDP, current USD US: $23.0 tn

China: $17.7 tn

Japan: $4.9 tn
Germany: $4.2 tn
UK: $3.2 tn
Russia: $1.8tn

1989 2021

Source: (1) World Bank. Data as of February 28, 2022. 2021 is Oxford Economics data.

Russia–Ukraine / MAR 2022 / page 6

Rising Conflict Between Autocracies & Democracies
A recent 2021 report by Washington-DC based “Freedom House” (founded in 1941), downgraded the
freedom and democracy scores of 73 countries, representing 75% of the global population. The downgrade
represents a 15 year decline that began in 2006. At a systemic level, conflict has been steadily rising between
“one” and “dominant” party systems like China and Russia and “multi-” and “two” party democracies in East
Asia, Australia and the West.
Share of World Population
The world’s political systems Living in Liberal Democracies
60%

23%

0%
1900 1920 1940 1960 1980 2000 2020

Multi-party

Two-party

Dominant-party

One-party

No political party

Source: (1) Nicholas Thompson, CEO of The Atlantic. (2) Our World in Data, % includes Electoral and Liberal democracies. MUFG Capital Markets
Strategy.

Russia–Ukraine / MAR 2022 / page 7

President Putin’s Objectives in Ukraine
The starting point of analysis for understanding how we arrived at the current situation, and where we
may be going, is an understanding that President Putin’s objectives are centered very squarely on
“Ukraine,” and less on “security guarantees” or a deal with the West to pushback NATO expansion.

1 Restore Russia’s historical ties to Ukraine (“undoing the country’s

artificial separation from Russia”).

2 Rebuild former boundaries of the collapsed Soviet Union (in his words,
“the greatest geopolitical catastrophe of the 20th Century”).

3 Strengthen regional security around Russia’s “warm water

port access” via prior annexation of Crimea in 2014.

4 Revive Russia’s global geopolitical prestige, in concert with

China to the extent possible, by challenging the Western
dominated post WW2 institutional framework.

5 Draw a line on NATO expansion, and secure “guarantees”

across the former Soviet bloc and Eastern European region:
• Ban on Ukraine membership to NATO in perpetuity
• Withdrawal of NATO military forces to 1997 positions

Source: Francis Kelly (Fulcrum Macro Advisors); Kevin Nealer (The Scowcroft Group). Ian Bremmer (Eurasia Group). Taras Kuzio (Henry Jackson Society of London).
The Atlantic Council. Bloomberg. WSJ. Financial Times. Washington Post.

Russia–Ukraine / MAR 2022 / page 8

NATO’s Eastward Expansion
Since the early1990’s, NATO has expanded its membership from 16 to 30 nations, and
has acknowledged 3 new aspirational members: Ukraine, Georgia and Bosnia &
Herzegovina. With Presidential elections in both the US and Russia in 2024, and Putin’s
own political clock advancing, drawing a line on Western expansion of NATO became a
more important political priority for Putin.

Founding Members
ICELAND
Members as of 1991
(Dissolution of Soviet Union) NORWAY

Most Recent New Members

Aspirational Members
ESTONIA
NETHERLANDS DENMARK
LATVIA
RUSSIA
UNITED KINGDOM
LITHUANIA
BELGIUM POLAND
UKRAINE

LUXEMBOURG CZECH REP.

FRANCE
SLOVAKIA
BOSNIA & HERZEGOVINA
HUNGARY
GERMANY GEORGIA
ROMANIA
SLOVENIA
BULGARIA
CROATIA
PORTUGAL

ITALY TURKEY
SPAIN MONTENEGRO N. MACEDONIA

ALBANIA GREECE
Source: NATO
Note: Map excludes NATO members, the US & Canada

Russia–Ukraine / MAR 2022 / page 9

Russia-Ukraine: Why Now?
The peak-winter season, perceived Western leadership weakness and tacit Chinese support have all
contributed to the current timing of President Putin’s long-held wish to restore Russia’s 20th century
borders and pushback on potential NATO expansion. However, while seeking to take advantage of a
seemingly weakened West and fragmented NATO alliance, Putin’s actions have become a catalyst for
much stronger NATO unity and policy coordination than anticipated.

Peak winter Perceived Deepening

timing maximizes weakness of NATO & Sino-Russian
leverage on West Western leadership strategic ties
• European gas • US NATO & European • Putin and Xi have held
dependencies ~40% trade policy under Trump over 30 in-person meetings
• German dependency • Recent US withdrawal • Challenge and disruption
~50% from Afghanistan to Western-dominated global
• “Muddy terrain” for military • Low Biden (US) & Johnson architecture
exercises in early Spring (UK) approval ratings • Mirror Xi Jinping’s
(“lesson of history”) • Upcoming Macron assertiveness in restoring old
election in France boundaries (HK,
Taiwan & S.China Sea)
• Ukraine politically &
economically weak

Russia–Ukraine / MAR 2022 / page 10

Europe’s Russian Gas Dependency
Russia is the world’s 11th largest economy, Europe’s 5th largest trading partner, provides 50% of
Europe’s gas, 27% of its oil, with 30% of that transported through Ukraine
Share of gas supply from Russia

North Macedonia 100%

Finland 94%
Latvia 93%
Estonia 79%
Bulgaria 77%
Slovakia 70%
Croatia 68%
Czech Republic 66%
Austria 64%
Greece 51%
Germany 49%
Italy 46%
Lithuania 41%
Poland 40%
Hungary 40%
Slovenia 40%
France 24%
Netherlands 11%
Romania 10%

Source: (1) Statista “Which European Countries Depend on Russia Gas?” European Union Agency for the Cooperation of Energy Regulators. 2020 or latest available data.

Russia–Ukraine / MAR 2022 / page 11

The Implications of President Putin’s Actions Thus Far
By invading Ukraine, President Putin perhaps sought to take advantage of a weakened West,
fragmented NATO and a relatively inexperienced Ukrainian President, Zelenskyy. However, it
appears the opposite has happened. The forward trajectory of the crisis remains highly uncertain, but
the response of the West to date has been stronger and more unified than expected.

Impact of President Putin’s Escalation Thus Far

Strengthened global anti-Russian sentiment; triggered long-term damage to
Russian economy; deeply subordinated Russia in China relationship

Strengthened NATO

Strengthened European unity vis-à-vis Russian foreign policy aggression

Strengthened calls within Europe to diversify energy sources away from Russia

Strengthened President Zelenskyy’s credibility within Ukraine

Strengthened Ukrainian resolve vis-à-vis independence from Russia

Strengthened US President Biden’s leadership standing on global stage

Russia–Ukraine / MAR 2022 / page 12

2 Military Backdrop
Military Forces Near Ukraine
Russian & NATO military presence just before the invasion
Russian military positions Temporary Russian military sites Location of US & NATO troops

Estonia
4,000
NATO troops led by U.K.,
Canada and Germany Latvia More than 190,000
Russian troops massed near Ukrainian border
Lithuania • Moscow

• Minsk Russia
9,200
U.S. troops Belarus

Poland
34,300
U.S. troops 205,000 • Kyiv
Ukrainian active troops
Ukraine Luhansk
Germany
Rebel controlled area
Donetsk
1,900
U.S. troops The Crimean Peninsula is Ukrainian
territory annexed by Russia in 2014
Romania
6 Russian landing
2,500 ships undertaking drills
U.S. troops in the Black Sea

Source: Bloomberg; Janes; Russian Defense Ministry; Belarus Defense Ministry; Rochan Consulting; NATO; U.S. Department of Defense; U.K. Ministry of Defense; Ukraine National
Institute for Strategic Studies
Note: Locations of closest urban areas to deployments shown on map. Locations in Belarus include drills scheduled Feb 10-20.

Russia–Ukraine / MAR 2022 / page 14

Assessment of Russia’s Military Campaign
Assessment as of Feb 28, 2022

STRIKE FROM THE NORTH STRIKE FROM THE EAST STRIKE FROM THE SOUTH

NOVYE YURKOVICHI
TROEBORTNO
BELARUS
SENKIVKA RUSSIA
CHERNOBYL

IVANKIV
HOSTOMEL SUMY KHARKIV
KYIV

MELITOPOL LUHANSK
UKRAINE DONETSK

MARIUPOL
KHERSON
CHONGAR BERDYANSK

CRIMEA
Source: BBC Research. Ministry of Defense. Institute for the Study of War. As of February 28, 2022.
Russia–Ukraine / MAR 2022 / page 15
Global Defense Spending
While a US military response to the Ukraine crisis is not “on the table” for both strategic and security
reasons, it is worth noting that annual US military spending is more than 12x that of Russia – an observation
perhaps secondary to the more important point that both countries are leading nuclear powers

Total NATO: $1.1 trillion Rest of the World: $827bn

China All Other Countries

$252bn $202bn
USA
$778bn

Saudi Arabia Japan

India
$58bn $49bn
$73bn
Italy Canada
Other $29bn $23bn Australia
UK Germany France NATO Israel
$59bn $53bn $53bn Countries
$47bn
Poland Russia S. Korea
$46bn
$27bn
Turkey Spain
$62bn Brazil Iran
Netherlands

Source: (1) Stockholm International. Peace Research Institute. N.B Data is from 2020, with data available for 151 countries.

Russia–Ukraine / MAR 2022 / page 16

The World’s Nuclear Arsenal
Global nuclear warhead inventory, by country

6,257
Russia

225
United Kingdom

5,550 40-50
United States 290 165
North Korea
France Pakistan

350
90 China
Israel

156
India

Source: Arms Control Association. Estimated 2021 warhead inventories.

Russia–Ukraine / MAR 2022 / page 17
3 Global Sanctions Response
Russia More Prepared This Time
At over $600 bn, Russia’s FX Reserves are among the largest in the world, after China, Japan and
Switzerland. Combined with sharply lower USD-denominated debt and rising oil prices, Russia’s
economy today is better positioned to absorb Western financial sanctions than previously.
Russia FX reserves, USD bn

$800
Bank of Russia foreign exchange Only 16% in USD,
and gold assets, % market value
down from 40% in 2017
USD
Gold 16% Renminbi $643 bn
22% 13%
$600

GBP
Euro 7%
32%
Other
$400 10%

$200

$0
2000 2005 2011 2016 2022

Source: (1) Bloomberg. Data as of February 28, 2022. (2) Central Bank of Russia "FT, A Global Financial Pariah - How Could Central Bank Sanctions Hobble Russia"
(February 27, 2021).

Russia–Ukraine / MAR 2022 / page 19

Russia’s Dollar Decoupling Limits Sanction Impact
USD Exposure Russia’s Mitigating Steps
FX reserves • Reduced USD exposure of total FX reserves from 40% (in 2017) to 16% today

UST holdings • Reduced by 98% from peak in 2010

External debt • Total external debt has been steadily reduced since 2014 sanctions were imposed
• In addition, Russia reduced its dollar denominated debt by over 50% in the same
time period

Sovereign • Russia’s sovereign-wealth fund’s assets reached over $170 billion, but has held no
wealth fund US dollar assets since June 2021

Trade settlement • As of 2020, Euro overtook USD as primary currency for Russian exports to China
• USD declined to 56% of Russian trade receipts in 2021, down from 69% in 2016

“Russia has taken considerable steps to diversify away from the dollar. That has led
to a degree of resilience, though full-blown economic sanctions is triggering
meaningful market volatility and a recession should not be overlooked.”
Ehsan Khoman, MUFG’s Head of Emerging Markets Research

Source: Bloomberg “Russia’s Yearslong Quest to Quit Dollar is Blunting Sanctions”.

Russia–Ukraine / MAR 2022 / page 20
Russia’s Sharply Reduced UST Holdings
As of 2021, just 16% of Russia’s central bank reserves are in US dollars, down from 40% four years
earlier. In order to reduce US dollar exposure, Russia has reduced its holdings of US Treasuries by
98% from peak in 2010.
Russia’s ownership of USTs (USD bn)

$200
Peak:
$176 bn

$3.9 bn
$0
2007 2021

Source: (1) Bloomberg, “Russia’s Yearslong Quest to Quit Dollar is Blunting Sanctions”. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 21

Recent Historical Drivers of US-Russia Sanctions
With approximately 735 Russian entities targeted, the 2014 invasion and occupation of Crimea, and
related activities in Donetsk and Luhansk, have been the primary source of US sanctions policy toward
Russia prior to the more recent 2022 escalation in Ukraine.

Approximate number of Russian entities subject to U.S. sanctions

for the following reasons (as of Sept. 1, 2021)*

2014 invasion Corruption/ Coercive use

of Ukraine human rights of energy
abuse exports
Malicious
cyber
activities Evading
UN
sanctions**
735

170
69
30 23

*Can be individuals, organizations or transporting vessels.

**Against North Korea, Syria, Venezuela
Source: Congressional Research Service and Statista.

Russia–Ukraine / MAR 2022 / page 22

US Sanctions
Sanctions as of Monday, February 28

1 Central Bank: Imposed restrictive measures to prevent the Russian Central Bank for
accessing reserves in foreign currencies (done in conjunction with EU, UK and
Canada)

2 Financial Sector: Announced removal of selected Russian banks from SWIFT system

3 Visas: Restricted sale of “golden passports” to exclude wealthy Russians

4 Financial Sector: Sanctions on seven significant Russian financial institutions

(including two largest, VTB and Sberbank)
 Range from correspondent banking sanctions to full blocking sanctions
 Full blocking sanctions freezes assets in US, prohibits transactions with US
individuals and businesses, restricts access to the global financial system and US
Dollar

5 Funding: Restrictions on US individuals and firms from purchasing debt issued by

Russia’s MoF, central bank (CBR), National Wealth Fund, Russian SOEs, banks, and
private corporations

Russia–Ukraine / MAR 2022 / page 23

US Sanctions
Sanctions as of Monday, February 28

6 President Putin: Direct sanctions on President Putin

7 Russian Elites: Full blocking sanctions for selected Russian elites and family
members

8 Export Restrictions: Export controls on critical technologies (semiconductors,

lasers, sensors, etc.), as well as the addition of 49 Russian military companies to the
“Entity List”

9 Regional Sanctions: Broad jurisdiction-based sanctions in the Donetsk and Luhansk

regions
 Prohibitions on new investments, imports, exports and financing transactions
(similar to sanctions put on the Crimea region after annexation in 2014)

10 Nat Gas: Sanctions on Nord Stream 2 and the company’s leadership

Russia–Ukraine / MAR 2022 / page 24

Sanctioning the Central Bank of Russia (CBR)
Combined with the decision to deny selected Russian banks access to SWIFT, the move on Feb 26 to
sanction the Central Bank of Russia (CBR) has effectively disconnected Russia from the global financial
system (ex-energy), precipitated a sharp devaluation of the Ruble and put potentially unsustainable
pressure on the Russian banking system.

Notable observations:
• A G20 central bank has never been sanctioned before
(only Iran, Venezuela & Afghanistan)
• CBR sanctions from the US, UK, EU and Canada
(40% of CBR’s FX reserves)
• Prevents CBR from liquidating foreign assets to
support the ruble
• Prevents CBR from helping Russian corporates
service their FX-denominated liabilities
• Disconnects Russia from global financial system
(ex-energy)

Key Question:
Will the US Treasury add the CBR to the Specially Designated Nationals (SDN) list
and/or impose “secondary sanctions” on foreign entities that deal with the CBR?

Russia–Ukraine / MAR 2022 / page 25

Alternatives for the Central Bank of Russia
Alternatives available to the CBR to defend the currency and stabilize Russia’s economy are extremely
limited. According to the BIS, Western exposures to Russia have been reduced significantly since the
invasion of Crimea in 2014, estimated at $30 bn exposure to Russian banks, and approximately $90
bn to all Russian entities.

Policy alternatives for the CBR without access to its overseas reserves:

• Raise interest rates (Raised from 9.5% to 20% on Feb 28)

• Capital controls (initiated on Feb 28)
• Sell gold (5th largest stockpile in the world) - likely difficult
• Assistance from China (14% of Reserves held in RMB)

Why assistance from China may be limited?

• Fear of secondary sanctions on Chinese banks, denying access
to USD and EUR
• Desire to preserve economic relationship with the West
(trade, tech, FDI)
• Significant Chinese BRI investments across Eurasia region
• Xi concern of being viewed as a “responsible global leader”
• China’s preference for global order, over disorder

Russia–Ukraine / MAR 2022 / page 26

The Nuclear Option: Denying Access to SWIFT
The US and Europe had been hesitant to deny Russia access to the global SWIFT payments system
given the extensive negative feedback loops to the global economy. However, on February 26th, the
US, European Commission, France, Germany, Italy, UK and Canada, announced in a joint statement
that they would exclude some Russian banks from the SWIFT system.
Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Background on SWIFT: Reasons SWIFT Had Been “Off the Table”:

• Resistance from selected member states (i.e., Germany, Austria,
• Founded in 1973 Hungary)
• Belgian-based cooperative • Negative feedback loops to global economy likely significant given
society under Belgian law Russia’s size and global inter connectivity (EU’s 5th largest trading
• International payments partner, 40% of natural gas supplies)
system used by 11,000 • Targeted sanctions on Russian banks nearly as consequential
financial institutions in 200 without undermining global financial architecture
countries (exchanging an • Russian banks have access to less efficient but usable systems (i.e.,
average of about 32 million SPFS, CIPS)
messages per day) • Would adversely impact non-sanctioned sectors (agriculture, NGOs,
• Accounts for approximately humanitarian aid)
50% of all high-value global • Politicizing SWIFT risks negative longer term impact to USD as a
cross border payments reserve currency
• Communicates payments • May encourage China/Russia/EM to utilize block-chain alternatives
and securities transfers • Creates incentives to reduce dependency on USD based
• Majority of transactions monetary system
settled in USD • May trigger significant Russian retaliatory response (i.e., cyber,
energy access)

Russia–Ukraine / MAR 2022 / page 27

Halting Certification & Sanctioning Nord Stream 2
Following a visit to Washington the prior week, German Chancellor Olaf Scholz unexpectedly
announced on Feb 22 that Germany was halting certification indefinitely of the Nord Stream 2 gas
pipeline following Russia’s actions in eastern Ukraine. On Feb 23, President Biden announced plans
to sanction Nord Stream 2 and its corporate officers. The US Congress passed legislation in 2020
requiring sanctions on the pipeline, but President Biden temporarily waived the toughest sanctions
on national security grounds. That waiver has now been lifted.
Key Facts on
Nord Stream 2:
FINLAND
• 750 mile offshore gas pipeline
• 55 billion cubic meters of gas per
NORWAY year (> 50% of Germany’s annual
SWEDEN RUSSIA
ESTONIA consumption)
LATVIA • Announced in 2015
• $11 bn cost of construction
LITHUANIA
• Completed in Sept 2021
BELARUS • Wholly owned subsidiary of Russian
state-owned company Gazprom
• Not yet certified by German
regulators
POLAND

GERMANY • Opposed by US, UK & several

EU countries
Russia–Ukraine / MAR 2022 / page 28
EU Announced Sanctions
Sanctions as of Monday, February 28

1
Central Bank: Imposed restrictive measures to prevent the Russian Central Bank for accessing
reserves in foreign currencies (done in conjunction with US, UK and Canada)

2 Financial Sector: Announced removal of selected Russian banks from SWIFT system

3 Nat Gas: Halted certification of the Nord Stream 2 Pipeline

4
Individuals: Financial sanctions on 27 high profile Russians and entities involved in the
violations of international law by the Kremlin
• Freezes assets, ban on providing funds, ban on travel to and within the EU

5 Banks: Sanctions on banks that finance the Russian military and contribute
to the destabilization of Ukraine

6 Regional Sanctions: Ban on trade between the EU and the Donetsk and Luhansk regions
(similar to sanctions implemented after the annexation of Crimea in 2014)

7 Financial Markets: Measures to limit access on EU’s financial markets for the Russian state and
government

8 Banks: Limits on bank deposits and restrictions on Russians investing in EU securities

9
Exports: Export controls on dual-use and high-tech goods (electronics, computers, telecom,
IT, sensors, lasers, marine appliances)

10 Exports: Ban on export of aircrafts and related parts / equipment as well as tech needed to
update Russian oil refineries
Russia–Ukraine / MAR 2022 / page 29
UK Announced Sanctions
Sanctions as of Monday, February 28

1 Central Bank: Imposed restrictive measures to prevent the Russian Central Bank for accessing
reserves in foreign currencies (done in conjunction with US, EU and Canada)

2 Financial Sector: Announced removal of selected Russian banks from SWIFT system

3 Russian Banks: Sanctions on all major Russian banks: freezes assets in UK, prohibits
transactions with UK individuals and businesses, ban on travel to the UK, blocking banks from
sterling markets

4 Financial Markets: Legislation to block all major Russian companies from raising finance on
UK markets

5 Sovereign Debt: Legislation to prohibit Russian sovereign debt in the UK market

6 Russian Elites: Sanctions on selected Russian elites

7 Russian Airlines: Ban on Aeroflot planes landing in the UK

Russia–Ukraine / MAR 2022 / page 30

UK Announced Sanctions
Sanctions as of Monday, February 28

8 Exports: Ban on exports of any good that could have military use (electrical components,
truck parts)

9 Exports: Pending legislation to prohibit certain technology exports

10 Individuals: Limits on deposits by Russian nationals in UK bank accounts

11 Financial Sector: Accelerated passage of economic crime bill to target illicit Russian money in
the UK

12 Individuals: Sanctions on members of the Russian Duma and Federation Council (who voted
to recognize the independence of Donetsk and Luhansk)

13 Regional Sanctions: Extend existing territorial sanctions imposed on Crimea

• Banning UK individuals and business from dealing with the territory

14 Belarus: All sanctions extended to Belarus

Russia–Ukraine / MAR 2022 / page 31

Canada Sanctions
Sanctions as of Monday, February 28

Canada

1 Central Bank: Imposed restrictive measures to prevent the Russian Central Bank for
accessing reserves in foreign currencies (done in conjunction with US, EU and UK)

2 Financial Sector: Announced removal of selected Russian banks from SWIFT system

3 Sovereign Debt: Prohibition on Canadians buying Russian sovereign debt

4 Regional Sanctions: Prohibition on conducting business in Donetsk and Luhansk

5 Individuals: Sanctioning members of Russian parliament who voted to recognize Donetsk

and Luhansk as independent

6 Banks: Additional sanctions to be applied to two state-backed Russian banks

7 Armed Forces Deploying additional Canadian Armed Forces to Operation Reassurance

Source: Prime Minister of Australia. Reuters. CNN. Japan News.

Russia–Ukraine / MAR 2022 / page 32

Japan Sanctions
Sanctions as of Monday, February 28

Japan

1 Visas: Suspending the issuance of visas and restricting travel for certain Russian
individuals

2 Regional Sanctions: Freezing assets of parties in Donetsk and Luhansk regions

3 Individuals: Freezing assets of certain Russian individuals

4 Trade: Ban on imports and exports to / from Donetsk and Luhansk

5 Sovereign Debt: Ban on issuance and circulation of new sovereign bonds by the
Russian government in Japan

Source: Prime Minister of Australia. Reuters. CNN. Japan News.

Russia–Ukraine / MAR 2022 / page 33

Australia Sanctions
Sanctions as of Monday, February 28

Australia

1 Individuals: Travel bans and targeted financial sanctions on eight members of Russia’s
Security Council

2 Banks: Financial sanctions prohibiting Australian individuals and entities from doing
business with five Russian banks (Rossiya Bank, Promsvyazbank, IS Bank, Genbank, and the
Black Sea Bank for Development and Reconstruction). Restrictions also placed on
Australians investing in the state development bank VEB.

3 Regional Sanctions: Extending existing sanctions on Crimea and Sevastopol to include

Donetsk and Luhansk
• Prohibits trade in the transport, energy, telecommunications, and oil, gas and minerals sectors

4 Individuals: Will broaden scope of individuals and entities that Australia can list for
sanctions

5 Visas: Extending visas for Ukrainian nationals in Australia & fast tracking pending visa
applications from Ukrainian nationals

Source: Prime Minister of Australia. Reuters. CNN. Japan News.

Russia–Ukraine / MAR 2022 / page 34

4 Policy Implications
Fed Tightening May Marginally Slow
The most immediate impact of the Ukraine crisis on Fed policy has been the market’s repricing of
March rate hike expectations from 50 bps to 25 bps. While the market is still pricing significant
tightening by year end, it is worth noting that the Fed has never in its history been in this position:
policy rates at 0%, inflation above 7%, and the uncertainty of a potentially systemic geopolitical risk
event.
Market implied rate hikes, bps Market implied probability of 50 bps hike in
March 2022
Peak expectation:
180 168 bps Peak expectation:
(6-7 hikes) 80%
74%

Year-end 2022:
142 bps
(5-6 hikes)

41%

60 0%
Jan-2022 Feb-2022 Jan-2022 Feb-2022

Source: (1-2) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 36

Engineering a “Soft Landing” Will be Difficult
While the 2s-10s curve has been flattening rapidly, a 2018 Fed study found that the 3m - 10 yr UST
curve has been the most accurate market metric in predicting nearly every US recession since 1970,
with a median lead time from inversion to recession of approximately 9 months. While US recession is
not the baseline scenario for 2022 or 2023, the market has clearly become concerned about
decelerating growth on the back of rising inflation, elevated geopolitical risk and the potential for Fed
policy error.
Time to recession after
US 3m-10yr Curve inversion (months)
2.0%
17
9 155 bps
6

Min Median Max

inversion
-1.0%
2019 2020 2021 2022

Source: (1) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 37

“Green” Fiscal Stimulus Marginally More Likely
One of President Biden’s policy priorities has been passing additional climate focused fiscal stimulus,
a priority that was put in jeopardy when Senator Manchin announced his opposition to the Build Back
Better bill at the end of 2021. However, the escalating Russia-Ukraine crisis has likely given President
Biden marginally more leverage to negotiate a scaled down “green energy” focused fiscal stimulus
bill with Democrats in the spring.

Clean energy provisions in Key challenges

the Build Back Better bill: to progress
• Mid-term election year
$320bn $110bn $105bn • Impact of Senator Ben
Clean energy tax credits Technology, Resilience
manufacturing Investments Lujan’s (D-NM) illness on
and supply Democratic majority
chain
incentives • Spending resistance
given rising inflation
• Aligning moderate (i.e.,
Manchin) and more left-
leaning wings of the
Democratic Party (i.e.,
Sanders, Warren)

$20bn
Clean energy
procurement

Source: Build Back Better bill.

Russia–Ukraine / MAR 2022 / page 38

Investment in Renewables Likely to Surge
Historically, “Green CapEx” (investments in net zero, green and clean water infrastructure) has averaged
roughly $3.2 trillion per year. In order to meet the Net Zero and UN Sustainable Development Goals,
CapEx will need to rise to roughly $6 trillion per year for the rest of the decade. The Russia-Ukraine crisis
will likely accelerate the pace of transition globally toward renewable energy, especially in Europe.

Current Green CapEx investment Necessary Green CapEx to meet

Net Zero goals
Incremental
Legacy Net Legacy net
infrastructure
Zero capex zero capex $0.8
$1.2 $1.2

Legacy

$3.2 tn Legacy
$6.0 tn infrastructure
capex
$1.7
clean water
capex
$0.2 Incremental
net zero
Legacy $1.8
infrastructure Incremental
capex Legacy clean clean water
$1.7 water capex $0.2
$0.2

Source: (1-2) Goldman Sachs, “Green Capex Making Infrastructure Happen” (October 2021). World Bank. IEA. McKinsey. OECD.

Russia–Ukraine / MAR 2022 / page 39

Iran Nuclear Deal Revived
MUFG’s Head of Emerging Markets Research, Ehsan Khoman, expects an “interim Iran deal” could be
reached in Q3 2022 that would permit oil exports of up to 0.5 m/b/d, but that a full return to the Joint
Comprehensive Plan of Action (or to a new JCPOA) will not occur until Q4 2022 or Q1 2023. Russia’s
Ukraine invasion may increase the probability, and accelerate the timing, of a deal.
Iran oil production, m/b/d

5
5
Iran under heightened sanctions
US pulls out of Iran deal
3.8 m/b/d
4
4

3
3
2.5 m/b/d

1
1 Iran’s domestic consumption

0
0
2010
2010 2012
2012 2014
2014 2016
2016 2018
2018 2020
2020 2022
2022
Source: OPEC, BP, Capital Economics “China won’t hurt itself to help Russia” (Mark Williams). MUFG EMEA Research (Ehsan Khoman).

Russia–Ukraine / MAR 2022 / page 40

5 Economic Implications
Triple Hit for Global Economy
Inflation, policy tightening and geopolitical risk (Russia-Ukraine) have been a “triple-hit” for the global
economy in 2022, especially as compared to expectations less than a year ago. The IMF estimates
that supply chain dislocations cost the global economy a full one percentage point of growth in 2021
(i.e., 5.9% global growth would have been approx. 6.9%).

Global GDP growth, y/y

2021:
6% 5.9%

4%

2%

0%

-2%

-4%
1980 1986 1992 1998 2004 2010 2016 2022

Source: (1) Bloomberg. Data as of February 28, 2022. IMF forecasts.

Russia–Ukraine / MAR 2022 / page 42

Decelerating Global Growth
Growth will likely decelerate in almost every major global economy in 2022, but still remain “above
long term trend” in most advanced economies
2021 & 2022 GDP growth forecasts, y/y

12% 2022 2021

10%
7.7%
8%

6% 5.7%
5.0%
4.6% 4.2% 3.8%
4.1% 4.0% 3.8% 3.8%
4% 3.5% 3.5% 3.4%
3.2% 3.1% 3.1% 2.8%
2.5%
2.0% 1.8%
2%

0.0%
0%
Canada

Australia
Italy
China

Japan
India

Indonesia

World

UK

Eurozone

Germany

Argentina
US

Turkey

S. Africa

Brazil
Russia

Mexico
S. Korea
France
S. Arabia

Source: (1) Oxford Economics. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 43

Global Growth Revised Lower
Russia’s invasion into Ukraine is expected to cause higher European gas, oil and food prices over the
medium term. In addition, increased EU and US sanctions on Russia will cause an economic drag and
financial market disruptions. As a result, Oxford Economics lowered their forecast for global growth
by 0.2% in 2022 and 0.1% in 2023.

Global GDP Forecasts, % difference from no conflict baseline

Russia Eurozone UK World US

(-0.17%) (-0.17%)

(-0.25%)
(-0.31%)

(-0.70%)

Source: (1) Oxford Economics, “Russia Invades Ukraine, damaging the global economy”.

Russia–Ukraine / MAR 2022 / page 44

Inflation Expectations Revised Higher
Additional and prolonged supply side disruptions will cause higher peaks and a slower return to
“normal” inflation than had initially been expected. Europe will be hit hardest by these developments.
Average Eurozone CPI is now expected to reach 4.6% in 2022, 0.7 pp higher than prior forecasts.

2022 inflation forecasts

12.4%

6.7%
6.4%
6.1%

4.6%

Eurozone World US UK Russia

Source: (1) Oxford Economics, “Russia Invades Ukraine, damaging the global economy”. CPI inflation.

Russia–Ukraine / MAR 2022 / page 45

Ukraine Crisis Impact on Energy Inflation
Prior to Russia’s Ukraine invasion, energy prices were increasingly approaching late cycle and
expected to exert less pressure on US and global inflation over the next 12-18 months. While it is thus
far helpful that Western sanctions have avoided the energy sector, rising prices will nonetheless
increase inflation and prolong the projected return to normal.
Percentage point contribution of energy CPI inflation to Headline rate in major DMs

3.0

Implied by new
1.5
energy price
forecasts

0.0

Prior
forecast

-1.5
2016 2017 2018 2019 2020 2021 2022

Source: (1) Capital Economics, “8 questions about the Russia-Ukraine crisis”. Average of US, UK & Germany.

Russia–Ukraine / MAR 2022 / page 46

Supply Side Shock for Economies
Russian military action and Western sanctions would largely constitute a supply side shock, rather
than demand, for the European and global economy. While higher energy prices would be the most
immediate transmission channel, the negative knock-on effect to consumer demand would follow.

Channels of contagion for supply

Russia restraining exports as a diplomatic tool

Western embargoes and sanctions

Damage to infrastructure (i.e., pipelines)

Commodities most vulnerable to supply shocks

Russia accounts for approximately 40% of European natural gas

Russia is the world’s 3rd largest oil producer, accounting for > 10% of global production

Russia and Ukraine account for 25% of global wheat exports

Russia is the world’s largest exporter of fertilizers

Russia is the world’s largest exporter of palladium, critical for the global auto sector

Russia is highly dependent on the West for technology, semiconductors and oil equipment

Source: Capital Economics: Russia-Ukraine: Near-term inflation; long-term decoupling. EIA.

Russia–Ukraine / MAR 2022 / page 47

Russia’s Share of Global Commodity Production
Russia’s share of global production by commodity (% of world total)

Palladium 37%
Gas 17%
Gold 10%
Oil 10% Palladium is widely used in
Platinum 10% the global automobile,
Met-coal 8% electronics, and
semiconductor supply
Nickel 7%
chains
Aluminium 6%
Silver 5%
Iron ore 5%
Copper 4%
Thermal coal 4%
Lead 3%
Cobalt 3%
Zinc 2%
Alumina 2%

Source: (1) MUFG. Ehsan Khoman, Head of Emerging Markets Research – EMEA. Bloomberg.

Russia–Ukraine / MAR 2022 / page 48

Russia’s Largest Trading Partners
While Russia’s trade with China is more than 2x the volume of their next largest trading partner, the
EU in aggregate represents nearly 40% of Russia’s trade

Russia’s main trading partners, annual USD bn

China $112

Germany $45

US $30

Belarus $29

UK $28

Turkey $23
China and the EU
Italy $21 account for 18% and
Netherlands $19 37% of Russia’s trade
Kazakhstan $18

South Korea $18

Japan $18

Poland $16

France $14

Source: Bloomberg, More Sanctions as Mass Incursion Feared” (February 23, 2022). IMF data for 2020.

Russia–Ukraine / MAR 2022 / page 49

 Ukraine’s Largest Trading Partners
Russia accounts for just 7% of Ukraine’s total trade, down from over 30% a decade earlier. Over the
same time period, Ukraine has increased trade with the EU from 28% to 39%. Ukraine’s deepening
economic ties with the West have fueled Putin’s concern over NATO’s eastward expansion.

Total trade for Ukraine’s top trading partners, as a percentage of total

40% EU: 39%

30%

20%

China: 15%

10%
Russia: 7%
Belarus: 4%

0%
US: 4%
2010 2015 2020

Source: Reuter’s Graphics, “On the Edge of War” (January 26, 2022). IMF. Total trade is import + exports.

Russia–Ukraine / MAR 2022 / page 50

 US Consumer Sentiment Vulnerable
In February, the University of Michigan consumer sentiment index declined significantly to 63, the
lowest reading since October 2011. Expectations for inflation in the year ahead, concerns over future
real income levels, and expectations of weakening growth all weighed on consumer sentiment.
Gasoline prices, which hit the highest level since 2014, have also been a drag on confidence.

University of Michigan consumer sentiment index $4.00 Gasoline Price

National Average $3.61
110

$1.50
90 Jun-2016 Feb-2022

70

50
2016 2018 2020 2022

Source: (1) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 51

6 Market Implications
Areas of Optimism & Concern for Markets
In the first week of the Ukraine crisis, markets rallied into the end of the week, taking a page from the
COVID playbook in assuming a “finite” timeline for the crisis and policy support where needed.
However, the markets may very well be underpricing the scale of economic damage and geopolitical
escalation in a seismic shift that will play out over years, not weeks and months.

• Sanctions thus far side-stepping energy sector, the most Areas of Optimism
immediate channel for contagion
• COVID-playbook suggests even deep crises are temporary, and
policy support will follow if needed
• Fed may tighten policy at marginally slower pace than otherwise
• Direct impact to US economy limited, at least initially (low Russia dependency)

Areas of Concern
• Economic damage over time may be greater than currently
anticipated
• Exacerbates COVID-era supply side dislocations and inflation
• Seismic shift in global geopolitical structure poses significant risks
• As humanitarian crisis worsens, and West tightens policy grip and sanctions, unpredictable
retaliatory response from Putin may follow (cyber, energy access, military escalation)
• Impact of SWIFT & CBR sanctions on Ruble and banking system

Russia–Ukraine / MAR 2022 / page 53

Global Markets in 2022 YTD
Higher structural volatility and commodity prices have been the two dominant market
themes of 2022 so far
YTD cross-asset performance

15%

Commodities: +12.9%

10%

5%

USD index: +1.0%

0%

Global Debt: (-3.6%)

-5% Global Credit: (-5.5%)
US Rates: (-6.2%)
Global Equities: (-7.5%)
-10%
Dec-2021 Feb-2022
Source: (1) MUFG EMEA Research (Ehsan Khoman). Bloomberg. Data as of February 28, 2022. Global equities is MSCI All World Index. Rates is
Bloomberg US Corporate Bond Index. Credit is Bloomberg Global Aggregate Credit Total Return Index. Debt is Bloomberg Global Aggregate
Index. USD is DXY index. Commodities is Bloomberg Commodity Spot Index.

Russia–Ukraine / MAR 2022 / page 54

Energy Stocks Outperforming
Of the 11 sectors in the S&P 500, energy stocks are the only ones in positive territory year to date.
Semiconductors, in particular, continue to struggle under the weight of global supply chain
dislocations, geopolitical uncertainty, and sanctions.
S&P 500 sectors in 2022

Energy +25%

Financials (-2%)

Consumer Staples (-4%)

Utilities
SOX semiconductor index
(-6%)

Industrials (-7%)

Healthcare (-9%)

Materials (-9%)

Information Technology (-13%)

Real Estate (-14%)

(-14.5%)
Communication Services (-14%)
Jan Feb
Consumer Discretionary (-14%)

Source: (1) Bloomberg. Data as of February 28, 2022

Russia–Ukraine / MAR 2022 / page 55

 Russia’s Markets Under Pressure
5 year CDS widened by over 600 bps Russian equities have declined over 40% since
between Feb 18 and Feb 24 peak in Oct 2021, and nearly 30% since Feb 18
Russia 5 year CDS Russian Equities
Feb 24:
1000 917bps 5,000

500 3,000

553 bps
(-42%)
0 1,000
2015 2022 2015 2022

The Russian Central Bank raised its key policy Russia 10 year bond yield is above 10%
rate from 9.50% to 20% on Feb 28th for the first time in six years
Bank of Russia key rate announcement Russia 10 year domestic government bond yield
20% 20%
20%
16.0%
15%
15%

10%
10%
5%

0% 5%
2015 2022 2015 2022

Source: (1-4) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 56

Commodity Prices Surging Higher
According to Bloomberg, more major commodity contracts today are in backwardation (current
prices > future prices) than at any time since 1997. Production cuts, underinvestment in fossil fuel
projects, bad weather, pent-up demand and supply chain constraints have driven the Bloomberg
Commodity index to record highs. In addition, stockpiles of key commodities (including copper,
aluminum, natural gas, and some agricultural products) are at seasonally, and in some cases,
historically low levels.
Bloomberg commodities index
The Russia – Ukraine geopolitical risk
115
premium is one of many factors
driving commodities higher

100

85

70
+93%

55
Jan-2019 Feb-2022

According to Bloomberg, more than 130 countries globally have at least one commodity or import that is
predominantly sourced from Russia, Ukraine or neighboring Belarus.

Source: (1) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 57

Commodity Prices Surging Higher
2022 YTD performance
Industrial metals Agriculture

Palladium Aluminum Palm oil Wheat

+29% +20% +43% +20%

Jan Feb Jan Feb Jan Feb Jan Feb

Nickel Steel Grains Corn

+19% +12% +19% +18%

Jan Feb Jan Feb Jan Feb Jan Feb

Platinum Iron ore Agriculture index Sunflower oil

+8% +5% +15% +12%

Jan Feb Jan Feb Jan Feb Jan Feb

Source: (1-12) Bloomberg. Data as of February 28, 2022. Sunflower oil is Russia export price.

Russia–Ukraine / MAR 2022 / page 58

Commodity Prices Surging Higher
Resilient demand, depleting inventory, structural under-investment and rising geopolitical risk
(Russia-Ukraine) have all been contributing factors. While demand was the prevailing driver of oil
prices early in the COVID crisis, supply considerations have now become the stronger marginal
driver of oil both currently and looking ahead in 2022.
Brent Oil 2022 Performance WTI Oil 2022 Performance

$101 $96

+30% +27%

Jan-2022 Feb-2022 Jan-2022 Feb-2022

Spot Q1 Q2 Q3 Q4
(Feb 28) 2022 2022 2022 2022
Brent $101 $96 $102 $87 $108
WTI $96 $93 $99 $84 $105

Source: (1-12) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 59

Commodity Prices Surging Higher
While there is no expectation that Russia will fully halt natural gas exports to Europe, MUFG’s Head of
Emerging Markets Research, Ehsan Khoman, now expects heightened physical delivery risk to cause
higher and more volatile European gas and utility prices through the summer and into next winter

European Natural Gas (TTF) Key Drivers of Natural Gas Prices in 2022

$160 Elevated physical delivery risk

• Sanctions (despite energy carve-outs) will limit
access to payments / funding
• Transportation through Ukraine likely disrupted
(supply challenge for central and eastern Europe)

Germany halting certification of Nord Stream 2

$99
• Putin has said he will not increase gas exports
unless Nord Stream 2 approved

+40% Tight inventories to keep a higher floor on prices

$40
Jan-2022 Feb-2022 Mitigating factors:
• Increased US LNG shipments
Spot Q1 Q2 Q3 Q4 • Milder winter weather
(Feb 28) 2022 +27%
2022 2022 2022 • Strong wind generation
Nat • Current gas storage 31% full (enough for current
$99 $96 $104 $88 $117 winter season)
Gas

Source: (1) Bloomberg. Data as of February 28, 2022. MUFG Commodities research “How much will European gas markets be impacted from the
Russia-Ukraine crisis?” (Ehsan Khoman).

Russia–Ukraine / MAR 2022 / page 60

Risk Off for Global Equities
2022 YTD performance

FTSE 100 Shanghai Composite Euro Stoxx 50

+1.0% (-4.9%) (-8.7%)

Jan Feb Jan Feb Jan Feb

S&P 500 Nikkei DAX index

(-9.4%) (-9.7%)
(-9.5%)
Jan Feb Jan Feb Jan Feb

NASDAQ MSCI EM Eastern Europe Russia – MOEX index

(-34.0%) (-35.9%)
(-13.1%)
Jan Feb Jan Feb Jan Feb

Source: (1-9) Bloomberg. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 61

Equities Typically Trade Higher After Geopolitical Events
While there may not be an exact historic parallel for events that may transpire in Ukraine, the below
table nonetheless provides useful perspective on how markets trade in the months following major
geopolitical events. Over the last 30 years in particular, equities have shown an ability to “trade
through” major geopolitical events, both near and medium term.

S&P 500 performance around select geopolitical / military events

Select geopolitical/
Date military events 1-month later 3-months later 6-months later 12-months later
12/7/1941 Pearl Harbor (-3.4%) (-12.7%) (-9.1%) 0.4%
10/31/1956 Suez Canal crisis (& recession) (-2.8%) (-3.8%) (-0.1%) (-11.5%)
10/20/1962 Cuban missile crisis 8.7% 17.7% 25.1% 32.0%
10/17/1973 Arab oil embargo (& recession) (-7.0%) (-13.2%) (-14.4%) (-36.2%)
11/3/1979 Iranian hostage crisis 4.2% 11.6% 3.8% 24.3%
12/25/1979 U.S.S.R. in Afghanistan 5.6% (-7.9%) 6.9% 25.7%
8/31/1990 Iraq invades Kuwait (-8.2%) (-13.5%) (-2.1%) 10.1%
1/17/1991 Gulf War 15.2% 23.5% 20.6% 33.1%
8/17/1991 Gorbachev coup 0.0% 3.0% 7.0% 8.9%
2/26/1993 World Trade Center bombing 1.2% 2.5% 4.0% 6.4%
9/11/2001 9/11 (& recession) (-0.2%) 2.5% 6.7% (-18.4%)
3/20/2003 Iraq War 2.2% 15.6% 17.4% 28.4%
Average 1.3% 2.1% 5.5% 8.6%
% Positive 50% 58% 67% 75%

Source: John Authers, “Factor in Poor Sentiment to Size up Ukraine Crisis” (February 15, 202022) Bloomberg. Data source: Truist IAG, Factset. Grey shading represents down
markets where the economy was in recession at some point during the measurement period.
Russia–Ukraine / MAR 2022 / page 62
Implications for Ruble and EMFX
Ruble, the primary channel of contagion in global FX markets, traded to its weakest level on record

Russian Ruble 2022 YTD EMFX since Feb 18, 2022

(-1.0%) Romanian Leu

(-1.0%) Bulgarian Lev

(-31.5%) USD / RUB: (-1.5%) Turkish Lira

98.06
(-1.6%) South African Rand
Jan-2022 Feb-2022
(-4.3%) Czech Koruna

(-4.6%) Polish Zloty

(-5.0%) Hungarian Forint

(-5.8%) Ukranian Hryvnia

(-21.1%) Russian Ruble

Source: (1-3) Bloomberg. Data as of February 28, 2022. Currency axis inverted to show depreciation. Currency performance shown vs. USD

Russia–Ukraine / MAR 2022 / page 63

Implications for Global FX

Impact of Russia-Ukraine Crisis

Strength in safe haven currencies (USD, JPY, CHF)

Sharp depreciation in Russian Ruble (despite Central Bank intervention)

Weakness in Central European currencies (Czech, Hungary, Poland)

Divergence between USD and EUR with Europe more exposed to commodity inflation

Near term support for commodity based currencies

Oil, inflation and outflow sensitive EMFX under pressure (INR, KRW, TWD)

Dovish shifts from developed market Central Banks (ECB, BoE)

Source: MUFG FX Research, “Worst case scenario continues to unfold”,

Russia–Ukraine / MAR 2022 / page 64

USD Credit Market Fundamentals Remain Strong
Despite the high volatility and poor credit market returns in early 2022, the US High Yield market did
not have a single default in the month of January, with the 12 month trailing default rate declining to
an all-time record low of 0.8%. In fact, according to a recent Fitch report, there have not been any
defaults in six of the last 12 months, including a record 103-day zero default period in Q3 and Q4
2021. Volatility and inflation are running high, but the economy and credit quality remain strong.
US corporate speculative grade trailing 12 month default rate

1992 2000 GFC COVID-19

recession dot com crisis
14.6%
bubble
13.0%
11.6%

6% has historically 8.5%

represented a turn in
the default cycle

New
historic low
Jan 2022 :
0.8%

1990 2000 2011 2022

Source: (1) Bloomberg. Median net debt to EBITDA for companies in Bloomberg high yield index for which data was available. Companies that
reported negative EBITDA are excluded. Data as of February 25, 2022.

Russia–Ukraine / MAR 2022 / page 65

Key Drivers of Strong Credit Fundamentals
Macro backdrop challenging, but still attractive
• Strong US consumer, in aggregate ($3 trillion “excess savings”)
• GDP growth decelerating, but still 2-3x “normal” trend growth
• Inflation rising, but pricing power still high

Corporate liquidity exceptionally strong

• Corporate earnings & margins above historical trend
• Record 2020-21 debt issuance
• Low near term maturity walls

Fortified corporate balance sheets

• $7 trillion of global corporate cash balances
• Declining corporate leverage ratios

Default rates at historic lows

• USD HY default rate hit record low of 0.8% in January
• Recovering “fallen angels”
• Upgrades outpacing downgrades in both 2021 and 2022

Russia–Ukraine / MAR 2022 / page 66

Credit Spreads Wider on Volatility
Higher than anticipated volatility in 2022 on a more hawkish Fed and rising geopolitical uncertainty

IG Spreads in 2022 HY Spreads in 2022

1.4% 4.0%
+32 bps in 2022 +67 bps in 2022
130 bps
377 bps

Jan Feb
Jan Feb +53 bps + 14 bps
+12 bps +20 bps

0.9% 2.5%
Jan-2022 Feb-2022 Jan-2022 Feb-2022

Source: (1-2) Federal Reserve Board. Data as of February 28, 2022.

Russia–Ukraine / MAR 2022 / page 67

More Muted Issuance Pace in Bond Markets
In the first two months of the year, investment grade issuance is down 9% and high yield is down 63%.
In particular, new issue volumes dropped sharply with the Russia-Ukraine geopolitical tension in
February.
IG Issuance, USD Bn HY Issuance, USD Bn
Jan: Feb: Jan: Feb:
+11% (-31%) (-57%) (-75%)

$52 Bn
$151 Bn

$136 Bn

$121 Bn
$37 Bn

$84 Bn

$22 Bn

$9 Bn

Jan Jan Feb Feb Jan Jan Feb Feb

2021 2022 2021 2022 2021 2022 2021 2022

Source: (1-2) Federal Reserve Board. Data as of February 28, 2022. (3) MUFG Capital Markets Syndicate.

Russia–Ukraine / MAR 2022 / page 68

About the Authors
Tom Joyce
Managing Director
Capital Markets Strategist
New York, NY

[email protected]
(212) 405-7472

Tom Joyce is a Managing Director and Capital Markets Strategist within MUFG’s global capital markets and investment banking business.
Based in New York, Tom heads a team that creates customized analytical content for multi-national S&P 500 companies. His team provides in
depth analysis on the impact of economic, political, public policy and regulatory dynamics on the US credit, foreign exchange, rates and
commodities markets.

Tom has over 25 years of Investment Banking experience in New York, London, Hong Kong, and San Francisco. Over the last 15 years, Tom
created and built the Capital Markets Strategy role, advising corporate C-Suite executives (Boards, CEOs, CFOs, and Treasurers) on the
pervasive macro forces driving markets. Tom also presents at dozens of corporate events each year including Board meetings, CEO ExCo
sessions, CFO and Treasury off-sites, corporate leadership events and conferences.

Tom’s educational background includes a year of study at Oxford University from 1991 - 1992, a Bachelor of Arts in Political Science from Holy
Cross College in 1993, and a MBA from Kellogg Business School, Northwestern University in 2000.

Tom resides in New Canaan, CT with his wife and four sons, where he coaches youth basketball and serves on the Board of Trustees of the
New Canaan Library, the Board of the New Canaan Football (Soccer) Club and the Holy Cross College President’s Council.

Russia–Ukraine / MAR 2022 / page 69

About the Authors
Hailey Orr Stephanie Kendal
Director Associate
Capital Markets Strategist Capital Markets Strategist
New York, NY New York, NY

[email protected] [email protected]
(212) 405-7429 (212) 405-7443

Hailey Orr is a Director in MUFG’s Capital Markets Strategy group Stephanie Kendal is an associate in MUFG’s Capital Markets
within the global capital markets and investment banking Strategy group within the global capital markets and investment
business. The team provides market based content for corporate banking business. The team provides market based content for
clients to assist in strategic decision making. Focus areas include corporate clients to assist in strategic decision making. Focus
the impact of economic, political, public policy and regulatory areas include the impact of economic, political, public policy and
dynamics on the US credit, foreign exchange, rates and regulatory dynamics on the US credit, foreign exchange, rates
commodities markets. and commodities markets.

Hailey has a decade of Wall Street experience, including three Stephanie has spent over three years as a Capital Markets
years as a Consumer Sector Specialist in Equity Sales and seven Strategist. At her prior firm, Stephanie was a part of the Americas
years as a Capital Markets Strategist. Hailey is also a member of Women’s Network Junior Council and was an active member of
MUFG’s Inclusion & Diversity Council and has devoted years to the University of Michigan recruiting team.
participating in and developing Wall Street recruiting programs.
Stephanie graduated with honors from the University of
Hailey graduated with honors from the University of Michigan’s Michigan’s Ross School of Business with a BBA .
Ross School of Business with a BBA and a minor in International
Studies.

In March 2020, Crain’s New York Business Magazine named

Hailey one of the “Rising Stars in Banking and Finance”.

Russia–Ukraine / MAR 2022 / page 70

MUFG’s Capital Markets Strategy Team
The MUFG Capital Markets Strategy team provides monthly publications and weekly policy notes,
presenting to Boards and C-Suite executives, on a broad range of transformative themes driving
the FX, rates and credit markets including: the COVID-19 recovery, ESG’s acceleration, tax code
policy changes, US-China decoupling, corporate strategy, geopolitical risk and central bank
monetary policy.

Russia–Ukraine / MAR 2022 / page 71

MUFG’s Capital Markets Strategy Team

Russia–Ukraine / MAR 2022 / page 72

Disclaimer
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Russia–Ukraine / MAR 2022 / page 73