Russia Default Swaps Rise Most This Year on Oil; Ruble Weakens

The cost of insuring Russian debt against nonpayment over five years with credit default swaps jumped the most this year and the ruble depreciated for a seventh day as oil, the country’s main export, declined.

Five-year Russian default swaps climbed 17 basis points, or 0.17 percentage point, to 225 basis points, poised for the biggest daily gain since Dec. 6. The ruble lost 0.6 percent to 30.4075 per dollar by the 7 p.m. close in Moscow, the weakest since Jan. 30.

Brent crude dropped 1.3 percent to $110.82 per barrel after Saudi Arabia’s petroleum minister said the oil blend should trade at about $100 a barrel. Greece failed to agree on a unity government and officials in Europe considered the nation’s possible exit from the euro, a sign demand for the commodity in Europe may decline. The European Union is Russia’s largest trading partner.

“There is ample room for a violent correction in the period ahead, especially if the oil price continues to go south,” Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, wrote in an e-mailed note. “The ruble has so far been relatively immune to the general sell-off in Europe, the Middle East and Africa, but this will probably not last long.”

Investors increased bets on the ruble weakening, with non-deliverable forwards showing it at 30.8638 per dollar in three months, compared with expectations of 30.6070 per dollar on May 11. The Russian currency was little changed at 39.055 per euro and lost 0.3 percent to 34.2989 against the central bank’s target dollar-euro basket.

Russia’s $2 billion of Eurobonds due 2015 fell for a fifth day, increasing the yield by two basis points to 2.216 percent. Similar-maturity dollar-denominated bonds issued by OAO Sberbank, Russia’s largest lender, yielded three basis points more than on May 11 at 3.47 percent, while the yield on state gas monopoly OAO Gazprom’s 2015 Eurobonds fell one basis point to 3.513 percent.