Ruble Rallies on Pension Bets as Bonds Climb First Day in Six
The ruble rebounded from a one-year low and local bonds rose for the first time in six days as investors speculated the government will use a windfall oil fund to cover the pension shortfall.
The ruble strengthened 0.9 percent against the central bank’s dollar-euro basket to 36.8760 by 2:59 p.m. in Moscow. The yield on OFZ ruble bonds due 2027 declined 18 basis points to 7.67 percent, the sharpest drop since Jan. 9.
The government must decide to what extent the $87 billion National Wellbeing Fund can be used to cover the pension deficit, President Vladimir Putin said in an annual budget address in the Kremlin today. The shortfall is estimated at 943 billion rubles ($29 billion) this year, according to the Pension Fund. Crude oil, Russia’s main export earner, pared declines to trade down 0.2 percent at $103.27 a barrel in London.
For Russia to tap the wealth fund “they must sell their foreign currency assets, for example, foreign AAA-rated government bonds, get foreign currency and sell it for rubles,” Vladimir Miklashevsky, strategist at Danske Bank, said in e-mailed comments.
The currency appreciated 1 percent versus the dollar to 32.0760 with three-month volatility falling to 10.55, 68 basis points below the highest level this year, data compiled by Bloomberg show. The Bloomberg Composite Index (BEM) of emerging market dollar-denominated debt rose 0.25 basis points to 131.894. The index is down 5.6 percent from its high on May 2.
“Both OFZs and other EM bonds are stabilizing in the last couple of days,” Vladimir Kolychev, head of research at OAO Rosbank (ROSB), said in e-mailed comments. “It’s too early to talk of a turnaround, but clearly the levels are already very appealing.”
Concern the U.S. Federal Reserve will taper its bond buying program curbed appetite for riskier emerging-market assets, driving the yield on the 2027 OFZ bond to the highest since October on June 11.
“There are still many foreign investors who can keep liquidating their longs out of quantitative-easing concerns,” Kolychev said.
Outflows from Russia-dedicated bond funds accelerated to $93 million in the week to June 5 from $24 million, OAO Gazprombank said June 7, citing EPFR Global data. Net outflow from emerging-markets bond funds, where Russia’s weight is about 10 percent, totaled $1.65 billion in the week to June 5.
Longer-maturity OFZ bonds look attractive, even after increased foreign access to the debt in February fanned volatility, according to Vladimir Potapov, chief executive officer of VTB Capital Investment Management, which manages 190 billion rubles, including over 100 billion rubles in fixed income funds.
Inflation, which reached 7.4 percent in annual terms in May, is set to peak, allowing the central bank to lower its main short-term interest rates, which have been unchanged for nine months, Potapov said in a Bloomberg interview June 11.
Bank Rossii, which reports intervention data with a lag, bought rubles on the market equivalent to about $200 million on June 10, according to a website statement today.
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