Russia Dollar Yield at 4-Month High, OFZs Drop Before Euroclear

Russia’s dollar debt sank for a fourth day, pushing yields to the highest since September, as investors sought assets offering a better return on wagers the U.S. Federal Reserve will continue stimulus efforts.

The retreat lifted the yield on country’s Eurobond maturing April 2042 seven basis points to 4.511 percent, data compiled by Bloomberg show. The ruble fell 0.3 percent against Bank Rossii’s target dollar-euro basket to 34.8628 by 7 p.m. in Moscow, and was little changed against the dollar at 30.0575.

U.S. gross domestic product dropped at a 0.1 percent annual rate in the fourth quarter, the worst performance since the second quarter of 2009, Commerce Department data showed. Commodities rose and U.S. Treasuries fell as the contraction spurred bets the Fed won’t rush to end stimulus efforts.

“Given Russia’s sovereign Eurobonds’ tight spreads to Treasuries, I would expect them to suffer along with the safe-heaven bonds as investors continue to reallocate in favor of higher-yielding assets,” Vladimir Kolychev, head of research at Societe Generale SA’s OAO Rosbank, said by e-mail.

U.S. Treasuries dropped for the fifth day with the 10-year note yield rising to 2.01 percent, the highest level since April.

Russia’s ruble-denominated government notes maturing in July 2022 fell, lifting the yield two basis points to 6.67 percent. Euroclear Bank SA said on Jan. 28 it is “highly unlikely” to be ready to offer foreigners direct settlement at today’s bond sale.

The Finance Ministry held two auctions of so-called OFZs earlier today, selling 68 percent of the amount tendered.

Soft Demand

“Soft demand for government paper at today’s primary auctions is hardly surprising, given comments from Euroclear about further delays in OFZ settlement,” Kolychev said.

The Treasury issued 1.04 billion rubles of debt due February 2019 at an average yield of 6.31 percent after offering 7.3 billion rubles of the notes. It also placed 18 billion rubles of OFZs maturing in January 2023 at a 6.75 percent yield out of 20 billion rubles offered.

“Internal drivers are not enough for the OFZ market to grow,” according to Yulia Safarbakova, an analyst at BCS Financial Group.

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