Russian Bonds Decline as Credit Suisse Predicts Rate-Cut Pause

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Russian government bonds fell, ending a two-day rally, as Credit Suisse Group AG said accelerating inflation may spur the central bank to pause its rate-cutting cycle.

The yield on five-year government notes due May 2020 rose seven basis points to 11.18 percent. The ruble strengthened 0.7 percent to 55.4530 per dollar as of 5:31 p.m. in Moscow as crude oil rebounded from the biggest drop in almost four weeks.

The Bank of Russia may hold the benchmark interest rates at its July 31 meeting, Credit Suisse economist Alexey Pogorelov wrote in a note to clients. While annual inflation slowed to 15.3 percent in the week through June 29, it may rise back to 15.5 percent because of planned increases in regulated tariffs such as electricity and water, he said. Still, Dmitry Dudkin of UralSib Capital differed with that view, saying the downward pressure on inflation won’t abate.

“There is no reason to bet big on the yield increase, because in six months it will face a guaranteed decline,” Dudkin, head of fixed-income research at UralSib Capital in Moscow. “Though the central bank may skip a rate cut at the July 31 meeting, there are still four meetings left until the end of the year.”

Five-year government bonds yield 32 basis points below the central bank’s key rate, compared with a 362 points discount on April 16. Traders of forward-rate agreements have also reduced their rate-cut bets.

The Micex Index of equities added 0.4 percent to 1,646.51 as the market’s 30-day volatility declined to 14.46, the lowest since December, from more than 35 in January.

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