Bonds, Ruble Rise as Barclays Sees $40 Billion Inflow, Oil Gains

Russia’s local bonds rose for a third day and the ruble gained as Barclays Plc recommended buying the currency amid foreign inflows to the domestic debt market.

The yield on so-called OFZ notes due February 2027 declined three basis points to 7.02 percent, the lowest in more than a week. The ruble strengthened 0.2 percent against the central bank’s dollar-euro basket to 34.7469 by 7 p.m. in Moscow, headed for a 0.2 percent gain in the week. It added 0.1 percent versus the dollar to 30.1450.

Euroclear Bank SA started settling local bond transactions directly for foreigners on Feb. 7, a move that may bring as much as $40 billion in inflows to the debt market in 2013 to 2014, according to analysts headed by Vladimir Pantyushin at Barclays’ investment unit. They forecast the ruble will appreciate as a result and recommended buying the currency versus the basket. Oil, Russia’s biggest export, climbed to a nine-month high, adding 1.2 percent to $118.64 a barrel in London trading.

“OFZs are up today on foreign money expectations after yesterday’s Euroclear opening,” Dmitry Igumnov, head of fixed income at BCS Financial Group in Moscow, said by e-mail. Foreign banks’ Russian units are buying longer maturity bonds, he said.

Investors should purchase 15-year notes at a 7.12 percent yield, Alexander Ovchinnikov, vice president for fixed-income at Sberbank CIB, the investment-banking arm of Russia’s biggest lender, said in an e-mailed note. The yield was at 7.09 percent today, down four basis points, or 0.04 percentage point.

Local Banks

Slowing inflation in the second half of the year will boost the appeal of the bonds, Ovchinnikov said.

By starting direct settlement, Euroclear opens the $100 billion market to foreign investors, who will no longer need to use local brokers.

Local banks dominate the OFZ market, which the Finance Ministry valued at 3.2 trillion rubles at the end of last year ($106 billion). Non-residents hold about 6.5 percent of the debt, compared with the 17.6 percent foreign investors hold in Turkey and 29.7 percent in Mexico, according to Russian Finance Ministry and International Monetary Fund data.

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