Russia’s ruble debt rallied after a three-day slump as the Finance Ministry signaled the bond market may open to foreign investors as early as this month, spurring additional inflows into the domestic market.
The yield on government ruble notes maturing February 2027 fell three basis points to 6.99 percent after increasing four basis points in the previous three days. The yield on so-called OFZs due July 2022 fell eight basis points, the most in two weeks, to 6.66 percent. Russia’s overnight MosPrime rate fell 32 basis points to 5.16 percent, the lowest since September.
It is “quite possible” the Finance Ministry’s next OFZ auction in January will be held with direct settlement through Euroclear Bank SA in place for the first time, Deputy Finance Minister Sergei Storchak said in an interview in Davos, Switzerland late yesterday. Russia is preparing to allow foreign investors -- who currently deal through local brokerages -- direct access to the domestic market, a move Sberbank Investment Research says may bring $20 billion of inflows this year.
“We see demand for OFZs today, both due to Euroclear and internal factors,” Dmitry Igumnov, head of fixed income trading at BCS Financial Group, said by e-mail. “Liquidity is up and, as a consequence, money market rates are down.”
It’s “realistic” to expect the start of direct settlement in the first 10 days of February, Sberbank analysts wrote in a note today. They forecast a gradual decline in OFZ yields in the coming days.
Bond traders, fund managers and analysts say demand may ebb if the start of direct settlement is delayed.
“If the market doesn’t see a large number of new investors, Russian market participants might start taking profits,” Alexander Nikolaev, head of fixed income trading at OAO Bank of Moscow, said by e-mail.
Alexey Korolenko, who runs a bond fund at UralSib Asset Management, closed his main positions in OFZs in November and December last year.
“The major part of the rally in OFZs is over,” he said by phone from Moscow. “But we aren’t short OFZs.”
Once inflation is subtracted from the yield on the notes, the real interest rate has declined almost to zero, meaning the bonds’ gains are “mostly exhausted,” ZAO Raiffeisenbank analysts wrote in a note yesterday.
“Inflationary risks” and a “volatile environment on foreign markets” will govern investor appetite in the future, they said.
The central bank does not plan to lower interest rates in the near future, First Deputy Chairman Alexei Ulyukayev reiterated this morning.
“The amount of information we will have in the near future does not allow us to change the current level of the rates,” RIA Novosti cited Ulyukayev as saying in Davos.
The central bank can’t cut interest rates because inflation at 6.8 percent exceeds the upper level of its target range for 2013, Ivan Sinelnikov, an analyst at OAO Gazprombank, wrote in an e-mailed note.
The regulator will only be able to ease monetary policy when weak industrial production, investment and retail trade data are “compounded” by inflation slowing to the central bank’s 5 percent to 6 percent target range, Sinelnikov said. That’s “not likely before the second quarter of 2013,” he said.