Russia Braves Bond Return as Ruble Falls With Stocks on UkraineVladimir Kuznetsov and Ksenia Galouchko
Russia is returning to the ruble-bond market for the first time in three weeks even as yields rise and the ruble and stocks decline after a deal to ease tension in Ukraine showed signs of unraveling.
The Finance Ministry will offer 10 billion rubles ($280 million) each of bonds due August 2023 and May 2019 tomorrow, according to a website statement today. The yield on the 2023 notes rose for a second day, jumping 17 basis points to 9.19 percent in Moscow. That’s 26 basis points higher than at their last sale. The ruble weakened less than 0.1 percent against the central bank’s target basket and the Micex stock index closed down 0.7 percent.
Pro-Russian forces who seized buildings in at least 10 eastern Ukrainian cities have said they are not bound by the deal reached by Ukraine, the European Union, the U.S. and Russia in Geneva on April 17. Russia may tap one of its wealth funds to fund spending in Crimea after the region was annexed from Ukraine last month, Maxim Oreshkin, head of the Finance Ministry’s strategic forecasting department, said April 16.
“It’s not a question of expensive or not expensive anymore,” Yulia Safarbakova, an analyst at BCS Financial Group in Moscow, said by phone. “The fact that they need to borrow is coming to the fore.”
The economy faces a “technical recession” in the second or the third quarter, capital outflow may reach $80 billion for the year and the budget will get 1 trillion rubles less than planned with state asset sales on hold and falling non-oil revenue, Oreshkin said.
Economic growth in the country of more than 140 million people will slow to 1 percent this year from 1.3 percent in 2013, according to the median estimate of 40 analysts surveyed by Bloomberg.
“One can assume there is some pressure on the Finance Ministry,” Safarbakova said.
U.S. Secretary of State John Kerry yesterday warned Russian Foreign Minister Sergei Lavrov of “consequences” if the government fails to act in “the next pivotal days” to restrain militants in eastern Ukraine, spokeswoman Jen Psaki said. Until now, the U.S. and its European allies have imposed sanctions only on certain Russian individuals and one bank.
“Ukraine remains the main factor for the market,” Alexander Kostyukov, an analyst at Veles Capital LLC, said by phone. “The key question is whether the U.S. will go ahead with new sanctions that would hurt the economy through Russian companies, especially the energy sector.”
Shares of OAO Gazprom, the nation’s gas export monopoly, declined for a second day. OAO Sberbank, the largest lender, decreased 1.7 percent to 76.30 rubles.
OAO Magnit, the nation’s biggest food retailer, retreated 1 percent. The company’s fell to 9.1 percent of earnings before interest, taxes, depreciation and amortization in the first quarter from 9.3 percent a year earlier, it said in a statement today.
The U.S. and European union leveled some sanctions after President Vladimir Putin annexed Crimea. Separatist tension in eastern Ukraine cities has increased since former President Viktor Yanukovych was toppled in February. The U.S. and EU have threatened to ratchet up sanctions on Russia if it doesn’t act to defuse the confrontation.
Pro-Russian forces, who seized buildings in at least 10 eastern Ukrainian cities, say they aren’t bound by the April 17 deal reached by Ukraine, the EU, the U.S. and Russia in Geneva.
Brent crude fell from a seven-week high, declining 0.9 percent to $108.99 a barrel. The ruble gained 0.1 percent to 35.6875 per dollar and weakened 0.2 percent to 49.3065 per euro. The currency is the second-worst performer this year among 24 developing-country currencies monitored by Bloomberg, depreciating 7.9 percent against the dollar.
Russian companies are set to pay as much as 485 billion rubles in taxes this week, including as much as 240 billion in mineral extraction levies on April 25, potentially boosting demand for the local currency.
Yields on Russia’s 2027 bonds have risen 74 basis points since Putin’s intervention in Crimea started. The spike in borrowing costs has deterred the nation’s Finance Ministry from selling debt as the weaker ruble and higher oil prices boost public revenue.
Russia will probably see a budget deficit of about 200 billion rubles this year, Dmitry Dudkin, head of fixed income research at UralSib Capital in Moscow, said in e-mailed comments. That means the Finance Ministry needs to place about 200 billion rubles to 300 billion rubles of bonds this year on top of the 145 billion they have already sold, he said.
“They don’t need the money badly, but they still need it,” Dudkin said.