Ruble Gains Fourth Day, Bonds Rise as Politics Trump Oil Woes

  • Russia seeks UN resolution to form anti-terrorist coalition
  • Morgan Stanley warns ruble is overvalued relative to oil

The ruble strengthened and bonds gained, sending yields to a one-year low, on speculation improving relations with the U.S. and Europe will lead to the easing of sanctions, outweighing concern about falling oil prices.

The currency added 0.2 percent to 64.651 per dollar by 8:20 p.m. in Moscow, after weakening as much as 0.6 percent earlier. The yield on five-year notes fell 21 basis points to 9.76 percent, the lowest since October 2014. Sberbank PJSC, Russia’s biggest lender, climbed as much as 4.4 percent and closed at a two-year high.

Geopolitical developments are allowing the interests of Russia to align with those of France and the U.S. in Syria, fostering greater cooperation between the former Cold War foes and boosting investor sentiment. The government has sent a resolution on forming an anti-terrorist coalition to the United Nations and expects France to support it, Russia’s Foreign Ministry spokeswoman Maria Zakharova said on Thursday.

“Putin is partnering with the West in fighting ISIS, which opens the way to the normalization of the relations between Russia and the West and possible easing of sanctions,” Oleg Popov, a money manager at the Moscow-based April Capital, said. April Capital bought Russian equities last week during the declines, he said.

Ruble Doubts

Concern the ruble was overvalued relative to the price of oil sent the currency lower earlier on Thursday. Brent in rubles traded near a 2011 low at 2,864, below the 3,326 average for the previous 12 months.

“The ruble is too strong considering current oil prices,” said Yury Tulinov, the head of research at Societe Generale’s Rosbank PJSC unit in Moscow. “If oil doesn’t start rising significantly, the ruble will weaken to between 65 and 70 in the near future.”

The price of Urals in rubles is trading below the 2016 budget assumption of 3,165 means that the currency is “expensive,” according to Morgan Stanley analysts in a note to clients Nov. 18. 

Brent crude was little changed at $44.08 a barrel, bringing this month’s decline to down 11 percent. Oil’s 44 percent slide in the past 12 months has hobbled Russia’s economy and strained finances, with the government set to register its biggest budget shortfall since 2010. Russia receives about half of its budget revenue from oil and natural gas sales.

The Micex Index climbed as much as 1.8 percent earlier before closing little changed at 1,811.20.

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