President Vladimir Putin’s steps to ease the crisis with Ukraine are adding fuel to a two-month recovery in Russian assets as the government sold out its first ruble-debt auction in a month.
The Finance Ministry sold all 10 billion rubles ($295 million) of OFZs due August 2023 offered today at an average yield of 8.43 percent, it said on its website. Yields on the debt slid 10 basis points yesterday to 8.42 percent after Putin asked lawmakers to revoke the right to use force in Ukraine. The drop was tied for the second biggest among 24 emerging markets monitored by Bloomberg.
Steps to de-escalate the four-month conflict have sparked a rally in Russian assets, which were further boosted as oil prices rise amid the turmoil in Iraq. While the government in Kiev and pro-Russian separatists called a cease-fire this week, violence flared up yesterday, raising the specter of more sanctions.
“The geopolitical tension has dropped, Russia no longer bears the premium for Ukraine risk,” Dmitry Postolenko, who manages about $110 million at Kapital Asset Management LLC in Moscow, said by phone today. “The relief rally has been overwhelming.”
Putin made the request to the upper house of parliament to help stabilize the situation in Ukraine yesterday after peace talks began, according to Dmitry Peskov, Putin’s spokesman. The U.S. is preparing sanctions aimed at specific areas of the Russian economy, including energy and technology, as the White House readies the next steps to pressure Russia over Ukraine, according to three people briefed on the plans.
Global funds bought back 82 percent of the Russian bonds dumped in February and March, increasing holdings by $727 million in the following two months, the Russian central bank said in a monetary policy report last week. Ruble bonds are the second-best performing developing-nation securities in June, returning 4.7 percent in dollar terms.
“Many investors are still underweight or at least not overweight, so when the market moves they will miss the potential” for market-beating returns, Jan Dehn, the London-based head of research at Ashmore Group Plc, which has about $70 billion in assets, said by e-mail yesterday. “One efficient way to get exposure quickly is to participate in an auction.”
Offensives by the Islamic State in Iraq and the Levant drove Brent crude to the highest level in more than nine months last week. This handed Russia, the world’s biggest energy exporter, a cash windfall, Tatiana Orlova, senior economist at Royal Bank of Scotland Group Plc in London, said by e-mail.
With Brent close to $115 a barrel and the budget posting a surplus equivalent to 1.4 percent of gross domestic product through May, the debt auctions aren’t vital for revenue, according to Paul McNamara, investment director at GAM U.K. Ltd., which manages $129 billion in assets
“Russia is an oil exporter and around these levels barely needs to issue,” he said by e-mail yesterday.
Poroshenko said Putin’s move was the first practical step he had taken to bolster the country’s peace plan. He later called for immediate talks with leaders in Russia, Germany and France after pro-Russian rebels shot down a government helicopter in violation of a cease-fire.
The ruble climbed 0.3 percent to 33.7250 per dollar by 6 p.m. in Moscow, after yesterday advancing 0.9 percent to the strongest level since January.
“The de-escalation story is becoming more credible,” Max Wolman, who helps oversee more than $10 billion in emerging-market debt at Aberdeen Asset Management Plc in London, said by e-mail yesterday.