Russian Bonds Climb First Day in Four as Rate-Cut Bets Advance

  • Finance Ministry sells out both government debt auctions today
  • Russian state debt is best-performing after Brazil in 2016

Russian bonds advanced for the first day in four as bets rose the central bank will push ahead with rate cuts, spurring appetite for the nation’s debt.

Government bonds climbed, with the yield on five-year notes falling three basis points to 8.79 percent. The Finance Ministry sold out both state bond auctions today, placing a total of 25 billion rubles ($392 million) of so-called OFZs. The ruble fluctuated as Brent oil rose 1.5 percent to $47.38 per barrel in London.

Russia’s local debt has handed investors the best returns in emerging markets this year as oil rallied 70 percent from January and on speculation the central bank will continue monetary easing. Forward-rate agreements rose on Wednesday to near the highest since June 13, with data showing derivatives traders predicting 61 basis points of reductions to the central bank’s base rate of 10.5 percent over the next three months. The next central bank policy meeting is on July 29.

“Russian bonds will benefit if the central bank cuts rates, but at a certain level demand for yields will start to weaken,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. “Recent gains in the ruble and other CEEMEA currencies against the U.S. dollar are driven by demand for high yields in the emerging-market universe."

The ruble traded 0.3 percent weaker at 63.7375 against the dollar by 7:07 p.m. in Moscow, having gained as much as 0.6 percent earlier. The Micex Index of shares was little changed, erasing earlier losses of as much as 1 percent.

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