Russian Bonds Gain as Slower Weekly Inflation Points to Rate Cut

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Russian government bonds rose, pushing yields lower for a seventh day as investors bet that decelerating inflation will spur the central bank to lower borrowing costs this month.

Yields on five-year ruble notes, known as OFZs, dropped 20 basis points to 10.59 percent, bringing the decline since July 7 to 71 basis points. The ruble appreciated 0.5 percent versus the dollar to 56.5440 at 5:30 p.m. in Moscow as crude oil rebounded from the lowest close in more than three months.

The Bank of Russia may lower the benchmark interest rate by as much as 100 basis points at its July 31 meeting, according to Kirill Sychev, a Moscow-based analyst at Bank Zenit. Data yesterday showed weekly consumer-price growth slowed to 0.1 percent from 0.7 percent in the seven days to July 13. Global investor sentiment improved this week as the Greek debt crisis abated and the selloff in Chinese markets paused.

“Most emerging-market bonds in local currencies are on the same trajectory, but OFZs are outperforming,” Sychev said by e-mail.

Russian local-currency sovereign bonds have returned 30 percent so far this year, the most among emerging markets, tracked by Bloomberg.

The Bank of Russia has lowered the key interest rate by 550 basis points this year to 11.5 percent, almost unwinding December’s emergency increase. Russian inflation has been slowing since touching a 13-year high of 16.9 percent in March.

While the Bank of Russia is targeting consumer-price increases of 4 percent in the medium term, the rate averaged 9.3 percent in the decade to 2014.

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