Russian Bonds Halt Drop as Global Stimulus Eclipses Local Policy

  • Generic 10-year yields fall the most in emerging markets
  • Less-aggressive rate cuts favor long-maturity bonds: UralSib

Russian bonds rallied as a government debt auction drew the most orders in more than a year amid bets global central banks will remain committed to stimulus and rebounding oil prices tempered the Bank of Russia’s move to a hawkish stance.

Ten-year yields fell the most in developing Europe, with the rate declining 12 basis points. The Finance Ministry sold all 6.1 billion rubles ($93 million) of 15-year notes at an auction, attracting the most demand relative to the amount offered since June 2015. The ruble strengthened 0.6 percent to 64.368 per dollar as of 5 p.m. in Moscow. 

The go-slow easing cycle of Russian policy makers favors bonds with longer maturities, such as those auctioned today, because it seeks to contain inflation risks that would otherwise compound over time and devalue the securities. Crude oil surged 1.3 percent to $46.48 per barrel, while stocks climbed around the world after the Bank of Japan announced tweaks to its monetary stimulus.

"The central bank is not forgotten, but the global background this morning is positive," Olga Sterina, a senior fixed-income analyst at UralSib Capital in Moscow, said by e-mail. "A less-aggressive cuts outlook also favors longer-term bonds over shorter-term."

Local-currency borrowing costs jumped after the central bank warned on Friday that the market was wrong to anticipate “lavish” reductions at coming meetings and that monetary policy would be kept “moderately tight.”

The Finance Ministry completed its third-quarter bond sale program on Wednesday, one week ahead of schedule, selling out 12 billion rubles of January 2025 floating-rate bonds. Demand was 37 billion rubles.

Next week the ministry is offering to exchange as much as 200 billion rubles of so-called OFZ-AD bonds that trade infrequently into more-liquid issues via auctions, according to a statement.

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