Photographer: Mikhail Galustov/Bloomberg

Russian Bonds Extend Losses Before Debt Auction; Ruble Gains

  • Morgan Stanley says ruble now moving with oil in `real-time'
  • Government to sell as much as 25 billion rubles in bonds

Russian bonds fell for a third day as the government said it planned to sell as much as 25 billion rubles ($318 million) in new debt to keep pace with its quarterly borrowing targets.

The yield on five-year notes jumped seven basis points to 10.47 percent and the rate on 10-year bonds increased seven basis points to 10.33 percent as of 6:15 p.m. in Moscow. The Finance Ministry will offer 10 billion rubles of government OFZs due in 2027 on Wednesday, and 15 billion rubles of floating-rate notes maturing in 2025.

After sales fell short last month of the average needed to meet this quarter’s goal of 250 billion rubles, the government is stepping up offerings to raise cash to finance spending as record-low oil prices cut revenue. To achieve its quarterly target, the Finance Ministry is now offering more to “stay on the safe side,” said Dmitry Dudkin, head of fixed-income research at UralSib Capital in Moscow.

“The worse the situation on the market, the more the volumes exacerbate the situation,” Dudkin said. “If they insist on selling bonds on a bad market, it may strongly shift the curve up."

Russia raised 23 billion rubles in last week’s offering of five-year notes and inflation-linked bonds, falling short of its maximum target of 27 billion rubles.

The ruble weakened as much as 0.9 percent before erasing losses to trade 0.4 percent higher at 78.2020 per dollar. Brent crude, the oil benchmark used to price Russia’s main blend, fell 0.6 percent to $32.62 a barrel after gaining as much as 2.1 percent and falling 1.3 percent . The currency’s 120-day correlation with the oil price reached 0.79, close to a record high set on Monday. A reading of one means the two assets are moving in lockstep.

The price of a barrel of crude in rubles slipped 0.7 percent on Tuesday to 2,565 rubles, compared with the 3,165 level needed to generate enough revenue in the 2016 budget to keep the deficit at 3 percent of gross domestic product.

The exchange rate will continue to reflect "oil swings on a real-time basis,” said Morgan Stanley economist Alina Slyusarchuk.

The Micex Index slipped 0.9 percent.

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