Ruble Rallies 2nd Day as Cease-Fire Holding Buoys Russian Bonds

The ruble rose for a second day and bonds climbed as oil traded above $60 per barrel and fighting in Ukraine subsided following a cease-fire agreement.

The ruble strengthened the most against the dollar among emerging-market currencies on Monday and government ruble bonds advanced for a fourth day. The increases came even after the European Union expanded its Ukraine blacklist to include a deputy Russian defense minister. Brent crude’s advance took its three-day gain to 14 percent.

The latest cease-fire and climbing oil prices are buoying Russian assets that have been battered by U.S. and EU sanctions and crude’s 48 percent collapse last year. Previous halts in fighting in eastern Ukraine have failed to stick and the government in Kiev and pro-Russian militants have already accused each other of violations just two days after the latest accord came into force.

“The key factor behind ruble’s strengthening is the rise in the oil price and positive sentiment toward Russia following the peace talks,” Nikolay Zolotarev, head of the investment department at OAO MDM Bank in Moscow, said in e-mailed comments. “Market participants are really tired of negative news.”

The ruble rose 0.6 percent to 63.10 versus the dollar as of 7:28 p.m. in Moscow, the strongest level since Jan. 9 on a closing basis. Yields on five-year ruble bonds fell 38 basis points to 12.97 percent, taking the four-day drop to 86 basis points.

Brent crude advanced 0.4 percent to $61.76 per barrel after surging 7.8 percent on Friday. Oil, which along with natural gas contributes half of Russia’s state revenue, held gains after a third weekly advance as U.S. companies slowed drilling and Libya’s state oil company threatened to halt the African nation’s production.

Oil Survival

“Brent trading above $60 is the main factor for Russian markets as it means the economy can survive,” Andrey Vashevnik, the chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. “Nothing is clear about Ukraine. On the one hand we’ve got sanctions, on the other the truce.”

Russia’s annexation of Ukraine’s Crimea region almost a year ago and the sanctions and separatist violence that followed have pushed relations with the EU and U.S. to a post-Soviet low and driven the economy to the brink of recession. Optimism that last week’s deal will bring a lasting solution contributed to the ruble’s best week of gains this year.

Contracts insuring Russian government debt against default for five years climbed from a seven-week low, rising 1.8 basis points to 476 basis points, according to data compiled by Bloomberg. Russian CDS lost 63 basis points last week.

Stocks Overbought

After rallying 2 percent on Friday, Russia’s Micex Index retreated from the highest level since April 2011 as a technical indicator showed the gauge’s gains may be overdone. Of 50 shares on the index, 49 traded above the 50-day moving average on Feb. 13, the highest proportion since January 2011, according to data compiled by Bloomberg. The Micex closed down 2 percent at 1,800.59 on Monday.

While fighting subsided along most of the front line of about 400 kilometers (250 miles) in eastern Ukraine, a standoff near Debaltseve, a key rail junction, emerged as the biggest threat to the deal brokered by the leaders of Russia, Ukraine, Germany and France. The militants demanded that Ukrainian troops surrender the battleground town as the two sides traded blame for breaking the cease-fire hours after it began.

“If oil directly leads to the ruble’s strengthening, the Ukrainian truce has more of a temporary nature,” Oleg Popov, a money manager at Moscow-based April Capital Asset Management who oversees about $500 million, said by e-mail. “Many investors are highly skeptical of Ukraine peace efforts following 11 months of conflict.”

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