Demand for Russian bonds jumped to the highest level since November at an auction amid speculation the central bank will lower interest rates next week. The ruble strengthened with oil.
The Finance Ministry received 28.4 billion rubles ($522 million) of bids for fixed-rate notes due August 2023, which was 5.7 times the amount tendered, according to data on its website. The yield on five-year bonds fell to a one-week low and the ruble rose the most in six weeks.
The central bank will probably reduce its key rate for the fourth time this year on Monday as inflation slows and policy makers seek to shore up the economy, a Bloomberg survey showed. Russia’s currency climbed as oil, the nation’s biggest export earner, extended its steepest advance this month.
“The market is expecting the central bank to cut the key rate and wants to catch higher bond yields while it can,” Andres Vallejo, who helps oversee the equivalent of $3.2 billion as a money manager at Kapital Asset Management in Moscow, said by phone on Wednesday.
The Bank of Russia will probably cut its key rate by 100 basis points, bringing reductions this year to 550 basis points. That would almost reverse a 650 basis-point emergency increase in December to stem the ruble’s slide.
Russia’s economy is headed toward its first recession since 2009 as tumbling oil prices curb revenue and sanctions by the U.S. and European Union for Russia’s role in the conflict in Ukraine limit companies’ access to capital markets.
The ruble jumped 2.7 percent, the most since April 23, to 54.033 against the dollar by 6:01 p.m. in Moscow. The yield on five-year bonds fell 26 basis points to 10.91 percent, extending this year’s decline to 4.5 percentage points, the most among major emerging markets.
Brent crude climbed for a second day, rising 1.6 percent to $65.91, extending yesterday’s 3.5 percent rally. The Finance Ministry also sold 9.9 billion rubles of May 2019 bonds out of the 10 billion offered.
The Micex Index of stocks retreated 0.7 percent, while the dollar-denominated RTS Index climbed 2.1 percent. VTB Group, Russia’s second-biggest lender, fell 1.5 percent. Companies controlled by billionaire Suleiman Kerimov sold their entire stake in VTB last year, Vedomosti reported on Wednesday, citing an unidentified person close to him.