Russian Bonds Advance as Ministry Readies Auction; Ruble Slides

Russia’s ruble bonds rose to the highest in almost two weeks as the government prepares a return to the primary market. The ruble weakened against the central bank’s target basket.

The yield on benchmark OFZs due February 2027 declined 11 basis points, or 0.11 percentage point, by 6:13 p.m. in Moscow to 7.81 percent, the lowest on a closing basis since June 19. The rate rose to 8.37 percent on June 24, the highest since July last year.

The Finance Ministry plans to sell 20 billion rubles ($605 million) of OFZs due January 2018 at an auction tomorrow after canceling a sale last week ahead of time because of market conditions. Russian assets plummeted amid an emerging-market rout sparked by Federal Reserve Chairman Ben S. Bernanke’s comments that the U.S. central bank may scale back its bond-buying program this year and end it in 2014.

“The market is gradually coming to its senses after the last week’s sell-off,” Dmitriy Gritskevich, an analyst at OAO Promsvyazbank in Moscow, said in e-mailed comments.

The government expects the yield on the offered bonds to be in the range of 6.80 percent to 6.85 percent, it said in a statement, published on its website. The rate on the securities was unchanged today at 6.82 percent after dropping 23 basis points in the past two days.

“The demand for ruble debt is coming back, and I think they can place the whole size,” Olga Sterina, analyst at Uralsib Capital, said in e-mailed comments. “The issue is liquid, of medium duration and was always in good demand during good markets.”

Ruble Slides

The outstanding amount of the 2018 OFZ bonds is 58.6 billion rubles, according to data compiled by Bloomberg.

“A successful auction may encourage investors and become a trigger for buying oversold bonds,” Promsvyazbank’s Gritskevich said.

The ruble depreciated for a second day against the central bank’s dollar-euro basket, losing 0.1 percent to 37.5355. The Russian currency weakened 0.3 percent against the dollar to 33.0695, the lowest in the last twelve months. Bank Rossii stops its trading operations on the market at 6 p.m.

The central bank has spent the equivalent of 104.5 billion rubles of foreign currency since May 29 to curb the ruble’s slide. Bank Rossii, which reports interventions with a delay and steps up purchases if the ruble weakens beyond certain levels, spent the equivalent of 6.55 billion rubles on June 28. The ruble’s three-month volatility added eight basis points to 11.11 compared with this year’s high of 11.54 on June 21, data compiled by Bloomberg show.

Brent crude advanced for a second day, adding 0.7 percent to $103.68 per barrel. Russia receives about 50 percent of its budget revenue from the oil and gas industry.

At 38.00 rubles per basket and 33.00 per dollar the ruble looks “bullet-proof” with current oil prices, “especially if risks of massive hedging by foreign OFZ holders have been reduced,” Vladimir Kolychev, an analyst at OAO Rosbank, said by e-mail.

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