Russian Bonds Head for Weekly Gain as Oil Rebound Spurs Stocks

Russian government bonds rose, with 2023 debt set for its best week on record, as climbing oil prices boosted appetite for assets of the world’s biggest energy exporter. Stocks and the ruble gained.

The yield on government bonds due August 2023 fell 29 basis points to 14.38 percent as of 6:35 p.m. in Moscow, taking the drop this week to 182, the strongest performance since the debt was sold in September 2013. The ruble strengthened 0.3 percent to 65.11. Brent crude, the oil grade traders use to price the country’s main export blend, jumped 5 percent to $50.03 per barrel.

Russian investors are tracking the oil price after a rout in the commodity pummeled the ruble and dragged the economy to the brink of a recession. The currency weakened 6.8 percent this month following a 46 percent drop in 2014 also triggered by sanctions imposed after Russia’s annexation of Ukraine’s Crimea region.

“We should thank gains in oil” for the rebound in ruble assets, Vitaly Isakov, a money manager at Otkritie Asset Management in Moscow, said by e-mail. “Brent might have finally found a bottom this week.”

The cost of protecting the government’s debt against default using credit default swaps fell for a third day, declining 4 basis points to 536. Russia has the sixth-riskiest credit globally, according to data compiled by Bloomberg.

S&P Decision

At the same time, bond yields are among the highest in emerging markets after Standard & Poor’s signaled last month it may lower Russia to junk from the lowest investment-grade level of BBB- within 90 days. Even after today’s advance, crude is headed for its eighth weekly drop.

An S&P cut would compound pressure on the ruble, Sberbank CIB analysts including Tom Levinson said in an e-mailed note today.

“At this level of oil prices, the currency should be at around 75 rubles per dollar,” or 13 percent weaker than today’s rate, Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, the top ruble forecaster last year according to Bloomberg’s rankings, said by e-mail. The currency “is returning to its fair level,” he said.

The benchmark Micex Index climbed 1.9 percent to 1,592.15, the fourth day of gains. The gauge lost 45 percent last year, the worst performance among global indexes. The Micex trades at 5 times estimated 12-month earnings, the lowest valuation among emerging markets.

Russian companies with listings outside their home country will remain excluded from MSCI Inc.’s global indexes because of investor concerns, the New York-based company said in an e-mailed statement dated Jan. 15.

“Given the unsure timeframe of the implementation, speculative plays on their inclusion might now disappear, pressuring prices and creating relative buying opportunities,” Ilya Piterskiy, an analyst at VTB Capital, said in the note.

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