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Russian Yields Drop to Month-Low as Ruble Gains for Seventh Day

Russian government bonds rose, pushing yields to the lowest in almost a month, and the ruble rallied for a seventh day against the central bank’s currency basket as the threat of U.S. strikes in Syria subsided.

The yield on 10-year government bonds fell five basis points, or 0.05 percentage point, to 7.41 percent, the lowest since Aug. 16. The currency advanced 0.3 percent against Bank Rossii’s target basket of dollars and euros to 37.5409 by 6 p.m. in Moscow after touching 37.4824 earlier. The ruble has gained 2 percent against the basket in the last seven sessions.

“Reduced concern” about Syria is “pushing investors into local bonds,” Leonid Ignatiev, the head of fixed income research at BCS Financial Group, said by phone from Moscow. Expectations the U.S. will pare stimulus are priced into the market, he said.

Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry were due to meet in Geneva today to discuss a plan for Syria to surrender its chemical weapons. The U.S. Federal Open Market Committee will decide at its Sept. 17-18 meeting to reduce monthly purchases of Treasuries to $35 billion from $45 billion, according to the median of 34 responses in a Bloomberg survey of economists.

Exporters who were waiting for the ruble to weaken before exchanging their dollar- and euro-denominated revenue into rubles are now actively selling their foreign currency as the local tax period nears, Ignatiev said.

“Risk appetite has been in decline for four months,” Ignatiev added. “A reversal is well overdue.”

Short Squeeze

The Finance Ministry sold all 11.6 billion rubles ($354 million) of 10-year bonds it offered yesterday at an average yield of 7.61 percent, below the expected range of 7.63 percent to 7.68 percent. Total demand at the upper end of the range was almost 42 billion rubles, the ministry said.

JPMorgan Chase & Co.’s Emerging Markets Currencies Index fell 0.2 percent to 89.42. Brent oil gained 0.8 percent to $112.41 per barrel. The currency of the world’s biggest energy exporter advanced 0.4 percent versus the euro to 43.4550 and 0.2 percent against the dollar to 32.7000.

The latest rally in government bonds caught many market participants “short or out of paper along the whole yield curve,” VTB Capital analysts Maxim Korovin and Anton Nikitin in Moscow said in an e-mailed note. Investors hoping to buy bonds at the auction “were disappointed, because the volume wasn’t enough to satisfy market needs,” they said.

Investors closing short positions in government bonds will only give the rally a short-term boost, Denis Poryvay, analyst at Raiffeisen Bank International AG in Moscow, said in an e-mailed note. Ten-year notes offer a 185 basis-point premium to the overnight repo rate and a 100 basis-point premium to inflation, he said.

“We don’t see potential for any further decline in OFZ yields,” Poryvay said.

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