Russian bonds rose for a second day and the ruble climbed as central bank Chairman Elvira Nabiullina said she has tools to ensure stability in financial markets as the crisis simmers with neighboring Ukraine.
The yield on Russian government bonds due in February 2027 fell 6 basis points to 8.65 percent. The ruble strengthened 0.2 percent to 42.0298 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, reversing an earlier drop to 42.2788. The Micex Index pared declines of as much as 1.9 percent and closed down 0.4 percent at 1,351.11.
Russia has enough foreign-exchange reserves and other tools to support the market, while there are no fundamental reasons for the ruble weakening, Nabiullina told President Vladimir Putin near Moscow today. The nation’s current account surplus rose 14 percent to $19.7 billion in the two months through February, she said. The central bank sold the equivalent of $11.3 billion of foreign currency March 3 to stop the ruble from weakening excessively, it said today.
“At this moment any soothing verbal interventions can move the market,” Dmitry Dorofeev, a money manager at BCS Financial Group in Moscow, said in e-mailed comments. “Good numbers on the current account” also supported Russian assets, he said.
The currency rose 1.2 percent yesterday after Vladimir Putin said he saw no need to invade Ukraine, while reserving the right to deploy the military to defend ethic Russians in the region. The ruble has lost 8.7 percent against the dollar this year.
Russian assets have come under pressure this week since pro-Moscow forces took control of the Crimean peninsula, spurring the worst standoff between Russia and the West since the end of the Cold War.
U.S. Secretary of State John Kerry is preparing to meet in Paris with his Russian counterpart Sergei Lavrov in an effort to reduce tension. The Financial Times reported the Obama administration is considering Iran-style banking sanctions if Moscow sends troops into eastern Ukraine.
Stocks pared declines as OAO Lukoil and OAO GMK Norilsk Nickel gained 0.7 percent and 1.4 percent, respectively.
OAO Gazprom slumped 2.9 percent to 125.62 rubles after VTB Capital said developments in Ukraine may weigh on the world’s biggest producer of natural gas.
“We do not believe that the company’s dividend payments for 2013 will be affected by Ukrainian’s non-payments,” VTB analysts led by Dmitry Loukashov said in an e-mailed note. “However, if the company decides to create some reserves for the debt, that could add to the risk for future dividends.”
Bank Rossii unexpectedly raised the key interest rate on March 3 to 7 percent, from 5.5 percent, to stem the ruble’s slump, which outpaced all emerging markets this year apart from Argentina’s peso.
The ruble rose 0.2 percent versus the dollar to 36.0065, after touching on March 3 a record-low 37.0005. It strengthened 0.3 percent to 49.3995 per euro by 6 p.m. in Moscow, when the central bank stops its market operations.
Investors should be cautious about buying back into the ruble, as there is still a “non-trivial” chance of escalation, Morgan Stanley analysts led by Rashique Rahman said in an e-mailed note. There still is “high uncertainty over what the Russian government’s ultimate objectives may be and how far it is willing to go in order to achieve them,” they said.
Ukraine’s dollar-denominated notes maturing in June, which slumped to an all-time low two days ago, fell to 93.612 cents on the dollar from 95.223 yesterday, according to data compiled by Bloomberg. Ukraine may ask bond holders to restructure its debt, Finance Minister Oleksandr Shlapak said in Kiev today.
The U.S. and Europe have stepped up efforts to contain the Ukraine crisis. French Foreign Minister Laurent Fabius said on RMC Radio today that his country and Germany will present a plan and warned Russia that the European Union could impose sanctions if there is no progress. Fabius will meet with Ukraine Foreign Minister Andriy Deshchytsia in Paris today.
“The mood right now is very poor,” Dmitry Dudkin, head of fixed-income research at ZAO UralSib Capital in Moscow, said in e-mailed comments. “The central bank tries to overcome it with a higher interest rate, but there’s no conviction that it will suffice. The scale of what you earn on the ruble devaluation far exceeds” the cost of funding, he said.