Russian Bonds Gain as SocGen Touts Ruble Assets on Oil Outlook

  • Yields on government's 2027 bonds decline to a seven-day low
  • BofA cuts projection for size of December rate cut by half

Russian government bonds rose, pushing yields to the lowest in seven days, as Societe Generale SA recommended buying ruble-based assets on expectations the price of oil will rise.

The yield on government bonds due February 2027 fell four basis points to 9.58 percent, heading for the lowest level since Nov. 23. The ruble gained 0.1 percent against the dollar to 66.5500 by 6:22 p.m. in Moscow as Brent oil, the benchmark for Russia’s main export blend, climbed 0.6 percent in London trading.

SocGen said eastern Europe is a “favorite region” and predicted Brent will reach $60 a barrel by the end of 2016. The upside for bond prices may be limited as Bank of America Corp. reduced its rate cut outlook for this month by half to 50 basis points, saying risks from sanctions against Turkey could push up inflation. Barclays and Raiffeisenbank forecast Governor Elvira Nabiullina will skip a rate cut altogether at the Dec. 11 meeting.

"Issues with Turkey do pose inflation risks, but the main factor is the currency stability, and it looks like here the main move has already passed - unless oil plunges again," Dmitry Dudkin, head of fixed-income research at UralSib Capital in Moscow, said by e-mail. Turkey’s downing of a Russian warplane last week wasn’t enough to dent investor optimism for ruble assets for 2016, he said.

Russia, which relies on oil for about 50 percent of its budget revenue, imposed bans on imports of Turkish fruit and vegetables in retaliation for the incident. That may cause inflation to rise by 2 percentage points, according to Alfa-Bank analysts.

The Micex Index was little changed at 1,770 after four days of declines.

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