Russian benchmark government bonds climbed, paring the steepest weekly drop in a year after investors speculated central bank rate cuts will be delayed.
The yield on benchmark OFZ bonds due February 2027 declined two basis points, or 0.02 percentage point, to 7.23 percent by 6 p.m. in Moscow, cutting its gain in the week to 29 basis points, the most since May 20, 2012. The ruble strengthened 0.1 percent against Bank Rossii’s dollar-euro basket to 35.4881 and appreciated 0.3 percent versus the dollar to 31.3245.
The yield on the 2027 bonds jumped the most since December yesterday as investors speculated bond purchases by the U.S. Federal Reserve may be curtailed and Chinese manufacturing unexpectedly contracted. Inflation in Russia was 0.2 percent in the week to May 20, bringing the annual rate to 7.4 percent, according to Vladimir Kolychev, head of research at OAO Rosbank. The central bank has a 5 percent to 6 percent target range for the year and kept its main interest rates unchanged for the eighth straight month on May 15.
“They definitely won’t cut rates in June, so there is nothing here for the hot money,” Kolychev said by e-mail. “Those with the perspective of several months might pick up at these levels.”
Trading volume in the 2027 bond was 5.9 billion rubles ($188 million), above the 4.5 billion ruble daily average for the last three months, data compiled by Bloomberg show. The ruble is the fifth best performer among emerging markets tracked by Bloomberg this week, with a gain of 0.3 against the dollar. The yield on Brazil’s January 2028 bonds is up seven basis points this week at 8.04 percent.
“We are waiting for inflation to decelerate in the summer months, with first signs of this trend appearing as soon as in the second half of June,” Dmitriy Gritskevich, a fixed income analyst at OAO Promsvyazbank, said in e-mailed comments.
Inflation may slow in comparison with last year when the government spurred the rate by raising gas and electricity tariffs from July 1, rather than at the begining of the year as it has in the past, he said.