Russian Bonds, Ruble Advance as Central Bank Promises Stability

Russian government bonds and the ruble advanced as central bank Chairman Elvira Nabiullina said she has the tools to ensure financial stability.

The yield on Russian bonds due in February 2027 fell 6 basis points to 8.65 percent at 6:41 p.m. in Moscow. The ruble strengthened 0.2 percent to 42.0507 against Bank Rossii’s target basket of dollars and euros, reversing an earlier drop to 42.2788. The Micex Index (INDEXCF) pared its loss to 0.4 percent, after slumping as much as 1.9 percent in earlier trading.

Russia has enough foreign-exchange reserves and other tools to ensure financial stability, while there are no fundamental reasons for the ruble weakening, Nabiullina told President Vladimir Putin near Moscow today. The nation’s current account surplus rose 14 percent to $19.7 billion in the two months through February, she said.

“Good numbers on the current account,” Dmitry Dorofeev, money manager at BCS Financial Group in Moscow, said in e-mailed comments. “In general, at this moment any soothing verbal interventions can move the market.”

The currency rose 1.2 percent yesterday after Vladimir Putin said he saw no need to invade Ukraine, while reserving the right to deploy the military to defend ethic Russians in the region. The ruble’s has lost 8.7 percent against the dollar this year.

Russian assets have come under pressure this week since pro-Moscow forces took control of the Crimean peninsula, spurring the worst standoff between Russia and the West since the end of the Cold War.

Stocks Rebound

U.S. Secretary of State John Kerry is preparing to meet in Paris with his Russian counterpart Sergei Lavrov in an effort to reduce tension. The Financial Times reported the Obama administration is considering Iran-style banking sanctions if Moscow sends troops into eastern Ukraine.

Stocks pared declines as OAO Lukoil and OAO GMK Norilsk Nickel, which gained 0.6 percent and 1.3 percent, respectively.

OAO Gazprom slumped 3.1 percent to 125.45 rubles after VTB Capital said developments in Ukraine may weigh on the world’s biggest producer of natural gas.

“We do not believe that the company’s dividend payments for 2013 will be affected by Ukrainian’s non-payments,” VTB analysts led by Dmitry Loukashov said in an e-mailed note. “However, if the company decides to create some reserves for the debt, that could add to the risk for future dividends.”

Escalation Possible

Bank Rossii unexpectedly raised the key interest rate on March 3 to 7 percent, from 5.5 percent, to stem the ruble’s slump, which outpaced all emerging markets this year apart from Argentina’s peso. The regulator sold $11.3 billion equivalent of foreign currency that day to stop the ruble from weakening excessively, it said today.

The ruble rose 0.2 percent versus the dollar to 36.0110 after touching a record-low 37.0005 on March 3. It strengthened 0.2 percent to 49.4350 per euro.

Investors should be cautious about buying back into the ruble, as there is still a “non-trivial” chance of escalation, Morgan Stanley analysts led by Rashique Rahman said in an e-mailed note. There still is “high uncertainty over what the Russian government’s ultimate objectives may be and how far it is willing to go in order to achieve them,” they said.

Ukraine Restructure

Ukraine’s dollar-denominated notes maturing in June, which slumped to an all-time low two days ago, fell to 94.085 cents on the dollar from 95.223 yesterday, according to data compiled by Bloomberg. Ukraine may ask bond holders to restructure its debt, Finance Minister Oleksandr Shlapak said in Kiev today.

The U.S. and Europe have stepped up efforts to contain the Ukraine crisis. French Foreign Minister Laurent Fabius said on RMC Radio today that his country and Germany will present a plan and warned Russia that the European Union could impose sanctions if there is no progress. Fabius will meet with Ukraine Foreign Minister Andriy Deshchytsia in Paris today.

“The mood right now is very poor,” Dmitry Dudkin, head of fixed-income research at ZAO UralSib Capital in Moscow, said in e-mailed comments. “The central bank tries to overcome it with a higher interest rate, but there’s no conviction that it will suffice. The scale of what you earn on the ruble devaluation far exceeds” the cost of funding, he said.

To contact the reporters on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net; Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

To contact the editor responsible for this story: Alex Nicholson at anicholson6@bloomberg.net

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