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Russia’s 15-Year Bond Yield Rises to Record High on Inflation

Russia’s 15-year ruble bonds dropped, lifting the yield to a record. The ruble snapped two days of declines against the central bank’s basket of currencies.

The yield on OFZs due January 2028 increased three basis points, or 0.03 percentage point, to 7.39 percent, the highest since the bond started trading in January. The ruble gained 0.1 percent against Bank Rossii’s dollar-euro basket to 34.9353 by 7 p.m. in Moscow. The Russian currency slid 0.3 percent against the dollar to 30.7775 and gained 0.5 percent against the euro to 40.0170.

Inflation accelerated to 7.3 percent in February from a year earlier, the Federal Statistics Service said on March 5. While the Economy Ministry forecasts the rate may be 7.2 percent to 7.3 percent in March, consumer prices will slow to 6.5 percent for the year, according to the average estimate of analysts surveyed by Bloomberg.

“The main reason for rising OFZ yields is that we are passing through the peak of inflation,” Dmitry Dorofeev, a fixed-income strategist at BCS Financial Group in Moscow, said by phone.

Yields on ruble-denominated government bonds are advancing because of low interest in the local market from foreign investors, Dmitry Polevoy and Egor Fedorov, analysts at ING Groep NV in Moscow, said in a note to clients. “Rising interbank lending rates have made longer-dated OFZ even less attractive for local players,” they said. The MosPrime overnight lending rate rose to 6.27 percent from 6.09 percent at the end of last month.

Tax Period

Crude in New York declined 0.9 percent to $91.09 per barrel, reversing a 0.4 percent increase on March 8, when Russia’s markets were closed for public holidays. The oil and gas industry provides about 50 percent of Russia’s budget revenue.

A stable oil price is likely to support the ruble in the short term at the “psychological” level of 35 rubles to the basket, OAO Rosbank analysts led by Vladimir Kolychev said in note to clients. The currency may then get additional support from exporters, who face a “large volume” of payments to the state budget, they wrote.

Russian corporate taxpayers will transfer about 950 billion rubles ($31 billion) to the state budget during this month’s tax period, which starts March 15, according to calculations by HSBC Holdings Plc.

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