Bond Yields Fall to Six-Month Low After Urals Gain; Ruble Climbs

The ruble strengthened against the dollar and bond yields fell to a six-month low as Iranian oil disruptions spurred demand for Urals crude, Russia’s chief export earner.

The Russian currency appreciated 0.4 percent to 29.68 per dollar at 7 p.m. in Moscow, its strongest closing level since Sept. 8. The yield on Russia’s $2 billion of Eurobonds due 2015 dropped nine basis points, or 0.09 percentage point, to 2.567 percent, the lowest level since Aug. 4.

Urals crude rose 0.3 percent to $121.48 a barrel, the highest since April 29, after the Middle East’s second-biggest oil producer denied United Nations inspectors access to a suspected nuclear site, raising concern that tensions between the Persian Gulf nation and Western countries may escalate. Prices for the commodity will probably “spike” higher, David Greely, head of energy research at Goldman Sachs Group Inc. in New York, wrote in a report today.

“Taxes and the high oil price” are driving the ruble’s gains, Sergey Ponomarev, head of foreign exchange at Moscow Bank for Reconstruction and Development in Moscow, said by e-mail. The lender expects crude prices to remain elevated, he said.

Russian companies pay taxes in the second half of every month. Exporters convert revenues from abroad into rubles, boosting demand for the Russian currency.

Catching-up ‘Overdue’

“Should the oil price spike up as a result of a breakout of a geopolitical crisis in the Middle East, we think that the ruble would be well positioned to rally,” Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, wrote in an e-mailed note to clients. “Some simple chart evidence suggests that while the ruble and the oil price enjoy a strong relationship, the ruble has actually lagged the oil-price rally lately, which may indicate that some catching-up is overdue.”

Urals has climbed 9.7 percent so far this month, while the ruble has appreciated 1.7 percent against the dollar. Brazil’s real climbed 2.1 percent over the same period, India’s rupee strengthened 0.8 percent and China’s yuan gained 0.2 percent.

The ruble was 0.5 percent stronger at 39.2526 per euro and 33.9877 against the central bank’s target dollar-euro basket. Investors pared bets the Russian currency would weaken, with non-deliverable forwards showing it at 30.0295 per dollar in three months’ time, compared with expectations of 30.1223 per dollar yesterday.

Lukoil, Gazprom Bonds

The yield on Russia’s 2020 dollar-denominated notes fell seven basis points to 4.013 percent. The yield on 2020 Eurobonds issued by OAO Lukoil, the country’s second largest oil company, declined 11 basis points to 5.605 percent, while the yield on 2021 dollar notes from state gas monopoly OAO Gazprom was little changed at 5.374 percent.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell two basis points to 201 basis points, down from last year’s peak of 338 on Oct. 4, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

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