Ruble Set for Biggest Gain in Three Weeks as Bond Sales Resume

The ruble headed for its strongest advance in three weeks and bonds climbed after Russia announced its first local-debt sale in 10 weeks as fighting in eastern Ukraine abated.

The currency gained 0.3 percent to 38.5680 versus the dollar as of 6 p.m. in Moscow, the largest increase on a closing basis since Sept. 3. Ten-year government bonds climbed, pushing the yield down five basis points to 9.49 percent, the lowest in almost a month. Russian stocks climbed for the first time in five days.

The Finance Ministry is offering 10 billion rubles ($259 million) of notes due August 2023 at an auction tomorrow after pulling nine sales in a row since tougher U.S. and European Union sanctions were imposed in July. Signs that a Sept. 5 truce between the government in Kiev and pro-Russian separatists is holding ground has improved investor confidence that U.S. and EU penalties won’t be expanded.

“The Finance Ministry decided to test the market,” Maxim Korovin, an analyst at VTB Capital in Moscow, said in e-mailed comments. “We’ll see how responsive it is to the new supply.”

Russia plans to sell more than 230 billion rubles in bonds before the end of the year and lenders are ready to purchase the securities, Finance Minister Anton Siluanov said at government meeting Sept. 11. No shots have been fired at Ukrainian troops since late yesterday, with the situation in the Donetsk and Luhansk regions “stable,” military spokesman Vladyslav Seleznyov said in a video posted today on YouTube.

Spread Narrows

The ruble was little changed versus the euro, leaving it 0.2 percent stronger against the central bank’s target dollar-euro basket at 43.5753. The currency has fallen 15 percent this year per dollar as allegations Russia is aiding separatists drove relations with the U.S. and its allies to a post-Soviet low.

The yield premium on the bond the government plans to sell tomorrow fell three basis points to 152 points above the central bank’s key interest rate. That compares with a spread of 187 points at the start of the month.

The central bank has raised borrowing costs 250 basis points since President Vladimir Putin’s incursion in Ukraine’s Crimea region at the start of March. Policymakers didn’t change the 8 percent rate at their latest meeting this month.

While the Finance Ministry hasn’t sold bonds at an auction since July, it has repaid 102 billion rubles of maturing bonds and coupons in August and is due to repay 32 billion rubles this month, according to data on its website.

“The market is starting to return to its normal state,” Konstantin Nemnov, the head of fixed income at TKB BNP Paribas Investment Partners in St. Petersburg, said by phone. “The Ukraine truce is holding up, there are signs of de-escalation.”

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