The ruble rebounded, Russian stocks surged and government bond yields tumbled after President Vladimir Putin said he’s not planning on sending troops to Ukraine, easing investors’ concern the standoff will escalate.
The Russian currency appreciated 1.1 percent to 42.2009 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, when the central bank stops its market operations. The yield on benchmark bonds due in February 2027 fell 17 basis points, or 0.17 percentage point, to 8.71 percent, even as the Finance Ministry canceled tomorrow’s debt auction, citing market conditions. The benchmark Micex Index surged the most in almost four years.
There is no immediate need to send troops to Ukraine and Russia is not considering adding the Crimea to its territory, Putin told a press-conference in the Moscow region today. The ruble was the worst-performing currency worldwide yesterday and bond yields soared after troops took control of the Crimean peninsula, where Russia keeps its Black Sea fleet. The central bank unexpectedly raised interest rates 150 basis points yesterday in a bid to quell market volatility.
“Putin’s stand has become clearer to the markets,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “There is some optimism that the geopolitical crisis may be soon over and fear of war eases.”
In his first public remarks since Russian forces took control of the Crimean peninsula in southern Ukraine, Putin reserved the right to use force to protect ethnic Russians, while saying there’s “no such necessity” to do so at present.
Bank Rossii yesterday ratcheted up rates and said it will start setting ruble intervention parameters daily to gain more room to ease exchange-rate swings. The central bank, which ING Groep NV estimates sold as much as $12 billion yesterday to slow the currency’s declines, allows the ruble to float within a flexible corridor against its target dollar-euro basket.
Before the central bank’s move, Goldman Sachs Group Inc. analysts wrote in a note to clients that Bank Rossii may favor a policy that allows for “discretionary interventions” while predicting the ruble has limited “downside” after sinking to a record low.
The ruble jumped 1.2 percent to 36.0825 against the dollar today and added 1 percent to 49.6790 versus the euro after its weakest close on record yesterday.
Russia is tussling with the West for influence over Ukraine, which claims its former Soviet master seized control Crimea by deploying troops to block army bases and airports. Troops stationed in Crimea have only been securing their bases, according to Putin.
The Finance Ministry canceled government bond auctions due to be held tomorrow, citing “unfavorable market conditions,” according to a statement on its website today. The yield on Russia’s 2027 ruble bond climbed 52 basis points to the highest since June 2012 yesterday.
“At such yields the Finance Ministry doesn’t need the money,” Olga Sterina, an analyst at UralSib Capital in Moscow, said in e-mailed comments today. “The decision is well expected.”
The Finance Ministry axed bond sales ahead of schedule on Jan. 28 and Feb. 4 as appetite for emerging-nation assets soured after the Federal Reserve cut monetary stimulus. The ministry also canceled debt sales on the day of the Feb. 19 auction.
The Micex Index gained 5.3 percent to 1,356.54 at the close of trading in Moscow, snapping five days of declines, including yesterday’s 11 percent slump. U.S.-based exchange-traded funds investing in Russian equities have lost 20 percent of their total assets this year, the biggest drop among 46 country-specific ETFs tracked by Bloomberg.
United Co. Rusal, the world’s largest aluminum producer, gained 9.7 percent and OAO Magnit, Russia’s largest food retailer, added 11 percent. OAO Gazprom rose 6.9 percent, the first advance in seven days for the gas export monopoly.
“Today was the first time in a few days that the world has seen a maneuver by the Russian army that can be classified as a sort of ‘retreat’,” Simon Quijano-Evans, London-based head of emerging-markets research at Commerzbank AG, said by e-mail. “That alone has caused the calming.”