Euroclear Drives Russia OFZ to Eurobond Spread to 16-Month Low

The premium investors pay to hold Russia’s ruble-denominated government debt compared with local-currency Eurobonds narrowed to the smallest in 16 months as expanded foreign access to the market stoked appetite.

The yield on ruble notes due March 2018 fell four basis points to 6.08 percent by 7 p.m. in Moscow, while the yield on the government’s ruble Eurobonds rose one basis point to 5.81 percent. That left the spread at 26 basis points, the narrowest since October 2011, data compiled by Bloomberg show.

Euroclear Bank SA, which operates the world’s biggest bond settlement system, started offering direct access to foreign investors to the local market of government ruble debt on Feb. 7. At the same time, the tightening caused by the liberalization has run its course, according to Aton Capital and Ronin Trust. Crude oil, Russia’s main export, rose 0.2 percent to $97.71 per barrel in New York.

The local 2018 notes are “extremely expensive now,” Anna Bogdyukevich, an analyst at Aton Capital, said in an e-mail.

The ruble weakened 0.1 percent against the central bank’s dollar-euro basket to 34.7369 by 7 p.m.

The “fair spread” between the bonds should be about 30 basis points, Ivan Guminov, who helps manage 12.5 billion rubles ($417 million) at Ronin Trust, said by e-mail.

Yield on Eurobonds and local bonds are calculated via different conventions, and directly comparable premium is even lower at 16 points, Guminov says.

An extra return on the locally traded debt is warranted because the securities are governed by Russian law rather than English legislation, VTB Capital analyst Anton Nikitin told Bloomberg on Feb. 12.

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