Ruble, Russian Bonds on Bets Rally Overdone Before Rates Meeting

The ruble weakened for the first time in six days and the goverment sold fewer bonds than offered at auction as some investors bet recent rallies were overdone before public holidays and a central bank rate meeting.

The ruble declined 0.2 percent to 39.9107 versus Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, when the central bank stops its operations. The yield on ruble-denominated bonds due February 2027 advanced four basis points to 8.58 percent.

The ruble has rallied 2.4 percent versus the dollar in the past month, the best performance among 24 emerging markets tracked by Bloomberg, as Russia signaled it’s ready to negotiate with new Ukrainian President Petro Poroshenko. The yield on the 2027 bonds fell 54 basis points since May 8 and the main equities gauge entered a bull market on June 6 after the European Central Bank unveiled stimulus measures to spur growth and avert deflation.

“The rally is out of breath as volumes are low and everything looks rather expensive,” Yulia Safarbakova, an analyst at BCS Financial Group in Moscow, said by phone.

The Finance Ministry sold 8.65 billion rubles of OFZ bonds due January 2028 out of 10 billion rubles offered at an auction today with demand totaling 10.1 billion. The weighted average rate was set at 8.61 percent compared with 8.64 percent at the close yesterday.

Holidays, Rates

Moscow Exchange won’t hold bond trading on June 12 and 13 due to public holidays and will trade foreign currency in a limited regime on June 13.

Economists expect the central bank to hold the benchmark interest rate at 7.5 percent on June 16 after raising it 200 basis points since February. Policy makers aim to bring down inflation to 4 percent in the mid-term after price growth accelerated to 7.6 percent in May. Inflation may peak at 8 percent in June, according to Economy Ministry estimates.

“High policy rates will remain the only measure to support the ruble exchange rate after the central bank allows more free-floating, given the ruble-averse macroeconomic environment in the second half of the year,” Alexander Morozov, chief economist for Russia at HSBC Holding Plc in Moscow, said in an e-mailed note.

The World Bank cut its 2014 forecast for Russia’s real economic growth to 0.5 percent from a January prediction of 2.2 percent.

The ruble weakened 0.2 percent against the euro to 46.61 and depreciated the same amount to 34.4295 versus the dollar.