Russian Government Bonds Decline for a Third Day on Rate Outlook

  • Ruble falls as Brent crude hovers near a four-month low
  • Blackfriars: Russian market should sell off with oil below $45

Russian sovereign debt dropped for a third day as oil traded near a four-month low amid hawkish comments from the central bank and after the government failed to sell all bonds at its weekly auction for the first in nearly a month.

The yield on five-year bonds rose nine basis points to 8.85 percent, the biggest increase on a closing basis in seven weeks. The Finance Ministry sold only 71 percent of bonds it offered at auctions. The ruble traded 0.3 higher to 66.45 per dollar as of 6:35 p.m. in Moscow.

Russian government bonds have offered investors the lowest returns in the past week in developing Europe, data compiled by Bloomberg show. The central bank left interest rates unchanged on Friday and warned a weaker ruble compounded the risks that inflation will exceed next year’s target. After rallying from a record low at the start of the year with a rebound in crude, the ruble is now the third-worst performer in emerging markets so far this quarter as concerns resurface that the global oil market is over supplied.

“Russia should be, and will be, selling off if oil does not bounce back to $45 a barrel,” said Anastasia Levashova, a money manager at Blackfriars Asset Management Ltd. In London.

The tone of the central bank statement accompanying Friday’s decision to keep the key rate on hold at 10.5 percent “became more hawkish,” JPMorgan economist Anatoliy Shal said in note to clients published on Monday. He moved his forecast for a rate cut to December from September.

The Finance Ministry sold only 5.74 billion rubles ($86.1 million) of OFZ bonds maturing in 2031 out of 10 billion rubles of the debt on offer. It placed the notes at an average yield of 8.66 percent, six basis points above the closing yield on Tuesday. In a separate auction the ministry sold 15.7 billion rubles of debt maturing in 2021 at an 8.83 percent yield, eight basis points higher than yesterday’s close.

The Micex Index of stocks gained 0.5 percent to 1,921.

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