Russian Ruble Bonds Decline Before Biggest Offering in 14 Months

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Russian bond yields rose from the lowest level since December before the largest Russian government bond auction in more than a year.

The Finance Ministry will offer 25 billion rubles of so-called OFZ bonds on Wednesday after demand for Russian fixed-rate bonds reached the highest level since 2013 on April 1. The yield on local-currency bonds due August 2023 jumped 36 basis points to 12 percent at 6:07 p.m. in Moscow after closing yesterday at the lowest since Dec. 4.

The nation’s bonds returned 24 percent his year, the most in emerging markets, as policy makers began reversing December’s emergency rate increase to 17 percent. As well as auctioning 10 billion rubles of fixed-rate notes, the finance ministry plans to sell 15 billion rubles of floating-rate debt as it seeks to benefit from any lowering of central bank borrowing costs.

“The demand for local bonds is very robust and well justified,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “While many think the rate cuts have already been priced in, pension funds and conservative asset managers who had quit OFZs last year can hop on the bandwagon.”

The Finance Ministry has raised 93.3 billion rubles ($1.7 billion) on the domestic bond market this year, almost two thirds of 2014’s total.

It received 28 billion rubles of bids at an auction of January 2028 notes on April 1, 5.6 times the amount tendered and the most for that maturity since November 2013, according to ministry data.

Ruble Rally

“With the easing of inflationary risks, the Bank of Russia will continue to decrease the key rate,” central bank Governor Elvira Nabiullina said Tuesday in Moscow at a meeting of the Association of Russian Banks. Consumer-price growth accelerated to 16.9 percent in March from 16.7 percent in February, the Federal Statistics Service said Monday.

The ruble advanced for a fifth day, adding 0.8 percent to 55.0420, 10 percent stronger this year, the most globally. The currency’s relative strength index was above 70 on Tuesday for a second day, after breaching the level that typically indicates an asset is poised to weaken for the first time since May.

The ruble went from being the worst major currency in the world last year to the best performer in 2015 as oil stabilized and a cease-fire in eastern Ukraine held. The recovery has brought the Finance Ministry back to the local debt market with regular weekly auctions as the nation faces its widest budget deficit since 2010.

Ruble ‘Overstretched’

Pro-Russian rebels escalated attacks Monday in the Luhansk region, the regional governor said on his website. Brent slid 1.1 percent to $57.49 per barrel in London on Tuesday, trimming yesterday’s 5.8 percent gain.

“The rally in the ruble looks stretched at current levels,” Iskander Abdullaev, an analyst at Sberbank CIB in Moscow, said by e-mail. “The geopolitical status quo remains unchanged and could worsen at any time, hence the current improvement in risk perception is very sensitive.”

The ruble-denominated Micex index of stocks fell 0.5 percent, while the dollar-denominated RTS gauge declined 0.3 percent.

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