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Ruble Has Strongest Decline in Two Months as Fed Effect Wanes

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Sept. 25 (Bloomberg) -- The ruble weakend the most in two months as investors speculated a rally in the run-up to last week’s decision by the Federal Reserve to maintain stimulus measures was overdone.

The Russian currency depreciated 0.8 percent, the most on a closing basis since July 25, to 37.1502 against the central bank’s target dollar-euro basket by 6 p.m. in Moscow, when the central bank stops its market operations. The yield on 10-year ruble bonds rose two basis points, or 0.02 percentage point, to 7.26 percent.

The ruble strengthened 4.5 percent in the 10 days through Sept. 19, its longest rally on record. Fed Chairman Ben S. Bernanke unexpectedly left the central bank’s bond-buying program in place on Sept. 18, boosting appetite for riskier assets. An index of 20 emerging-market currencies, compiled by Bloomberg, retreated for a fourth day today, losing 0.2 percent to 93.95.

“The ruble recently got such a boost that it has become attractive to take profits and switch into dollars and euros,” Vladimir Miklashevsky, trading desk strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “Expectations of the Fed’s tapering have not fully disappeared from the markets.”

The Federal Reserve will take the first step to reducing $85 billion in monthly bond purchases in December, according to 59 percent of 41 economists in a Sept. 18-19 survey, compiled by Bloomberg.

High Correlation

Russia-dedicated bond funds saw their 17th consecutive week of outflows in the seven days ended Sept. 18, losing $44 million, OAO Gazprombank said Sept. 20, citing EPFR Global data. That pared the cumulative inflow into Russian funds since the beginning of the year to $55 million, Gazprombank said on Sept. 20.

The difference between the correlated movements of emerging-market and developed-nation assets, an indicator of risk aversion, is the widest since October 2008, Morgan Stanley analysts led by Rashique Rahman said in an e-mailed note.

While that signals “much higher risk aversion among the emerging markets investors than in the general investment community at large,” it may mean riskier securities see a “near-term recovery,” they said.

Russia’s currency weakened 0.8 percent against the euro to 43.3300 and declined 0.6 percent to 32.0910 against the dollar.

The Finance Ministry sold 2.96 billion rubles ($93 million) of Dec. 2019 bonds at an average yield of 6.95 percent out of 16 billion rubles offered, according to the ministry. The ministry also sold 5.42 billion rubles of bonds due May 2016 of 7.56 billion rubles tendered. The weighted average yield was 6.41 percent, according to a website statement.

Oil, Russia’s main export earner, gained 0.7 percent to $109.41 per barrel in London.

To contact the reporter on this story: Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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