Russia sold the most debt at an auction since December 2013 as the rebounding ruble gives policy makers room to press ahead with interest-rate cuts.
The Finance Ministry sold all 25 billion rubles ($465 million) of local-currency bonds on Wednesday as the nation’s local-currency borrowing costs fell to the lowest in four months. The ruble traded 2.5 percent stronger at 53.6920 versus the dollar by 7:09 p.m. in Moscow, extending this month’s advance to 13 percent, the most in the world.
The cease-fire in Ukraine, oil stabilizing above a six-year low and the prospect for further central-bank easing have sparked a rally in Russia’s bonds and the currency this year. Russia has returned to the bond market after axing 27 sales in 2014, reviving a source of state revenue in a year when the nation is forecast to post its widest budget deficit since 2010.
“Foreigners are buying rubles as the biggest foreign-debt payments are behind us and the geopolitical situation has stabilized,” Alexei Egorov, an analyst at Promsvyazbank in Moscow, said by phone. “Oil has been demonstrating steady gains and trading above $55, which is a comfortable level for the Russian market.”
The central bank has cut rates twice this year after deploying an emergency 650 basis-point increase in December to stem the ruble’s collapse. The dovish policy is boosting the outlook for bonds, helping the country’s local debt return 25 percent this year, the most in emerging markets. Crude oil, Russia’s main export earner, has climbed 3.3 percent this week to $56.78 per barrel in London.
The ruble climbed for a sixth day, headed for the longest rally against the dollar since November. The gains drove the currency’s relative strength index to 76 on Wednesday, the highest since September 2013 and above the 70 level that indicates to some analysts that an asset is overbought.
The Bank of Russia will continue to lower its key rate as inflationary risks ease, central bank Governor Elvira Nabiullina told bankers at a conference in Moscow Tuesday.
“Russia is the hottest market at the moment,” Konstantin Nemnov, who oversees $1 billion as the head of fixed income at TKB BNP Paribas in St. Petersburg, said by phone. “Investors are betting the central bank will cut rates.”
Investors sought double the amount of bonds offered at Wednesday’s auctions, allowing the ministry to place 10 billion rubles of August 2023 bonds at the lowest weighted-average yield since November 2014.
In its second auction of the day, investors bought all 15 billion rubles of floating-rate bonds due in December 2017 after purchasing less than a third of the January 2020 variable-coupon debt offered the week before.
Russia reintroduced floaters for the first time in 10 years to lure investors with a security that offers some protection against inflation after price growth surged following the ruble’s collapse last year.
“The positive backdrop is helping,” Yakov Yakovlev, an analyst at Gazprombank, said by e-mail. “Fixed-coupon bonds look the most interesting when there are expectations that the key rate will be cut further this year.”
Egorov from Promsvyazbank predicts the Bank of Russia will cut its key rate 100 basis points to 13 percent on April 30 and continue reducing it to as low as 10 percent by the end of the year
Investors should increase the duration of Russian ruble bonds to 5.4 years from 3.7 years, Citigroup Inc. analysts, including London-based Luis Costa, wrote in an e-mailed note Wednesday. “We are finally seeing investors warm up to ruble risk,” they wrote.
The dollar-denominated RTS stock index closed up 1.8 percent, rising for a third day. The ruble-denominated Micex index fell 0.7 percent, the second day of declines, with OAO Lukoil dropping 1.3 percent.