Russia’s 2027 ruble bonds had their worst month in at least a year as investors shunned riskier assets amid concern the U.S. Federal Reserve may pare back stimulus and on expectations May inflation will quicken.
The yield on benchmark OFZ bonds due February 2027 rose 10 basis points, or 0.10 percentage point, to 7.54 percent at 7 p.m. in Moscow. That’s the highest since November 20, with the advance for May of 74 basis points within one basis point of the increase for the same period last year. The ruble weakened.
Developing-nation assets have slumped this month after Fed Chairman Ben S. Bernanke said last week the central bank could reduce the pace of bond purchases if there is a sustained improvement in growth. Russian consumer prices probably rose 7.3 percent in May from a year earlier, up from 7.2 percent in April and more than 100 basis points above Bank Rossii’s target, according to a Bloomberg survey of economists.
“The OFZ market became the victim of frightened foreign investors, who last month were buying all local-currency emerging-market bonds, but are now selling them on concern that the Fed will curtail QE,” Alexei Tretyakov, chief executive officer at Aricapital Asset Management in Moscow, said in e-mailed comments.
The Russian central bank left its main interest rates unchanged at a May 15 meeting, citing inflation above its annual target of 5 percent to 6 percent. Bank Rossii directors are scheduled to meeting next on borrowing costs in the first half of June.
Policy makers will probably cut the main rates “over the summer,” which makes OFZ “attractive,” Tretyakov said. Bank Rossii reduced some secondary market rates in April and May.
The ruble retreated 0.4 percent against Bank Rossii’s dollar-euro basket to 36.1897 compared, bringing the monthly decline to 1.8 percent. The Russian currency weakened 0.7 percent versus the dollar to 31.9450, compared with 31.1210 on April 30.
“We see further weakness for ruble later in the year, largely due to the ongoing decline in the current account surplus,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp., said in e-mailed comments. The current account surplus at the end of the first quarter fell to $27.9 billion from $39.2 billion a year earlier, according to central bank data. The ruble will probably decline to 36.70 against the basket by year-end, Osakovskiy said.
Brent oil declined 0.8 percent to $101.37 per barrel, falling for the third day. Oil and natural-gas industries contribute about half of Russia’s budget revenue.
Emerging-market bond funds, where Russia has about 10.5 percent weighting, saw an outflow of $89 million in the week to May 29, the first reduction since June 2012, OAO Gazprombank said in an e-mailed report today, citing EPFR Global data.
“There’s no safe haven any more,” Konstantin Artemov, who manages $500 million in fixed-income securities at Raiffeisen Capital in Moscow, said in e-mailed comments. “We are now dependent on the hurricanes on global exchanges.”