Photographer: Andrey Rudakov/Bloomberg

Russian Bonds Rally Most Since November as Ruble Gains With Oil

  • Current-account shows no reasons for ruble to fall more: ING
  • Rabobank wary currency is ready to move higher on oil outlook

Russian bonds rose, cutting yields the most since November, as the ruble was bolstered by a rebound in oil and data showing the country’s current-account surplus widened last year.

The yield on Russian government five-year notes fell 18 basis points to 10.63 percent, the biggest move on Tuesday among debt from Europe, the Middle East and Africa. The currency rose 1 percent to 78.468 against the dollar by 6:30 p.m. in Moscow after closing on Monday near a historical low of 80.10. Brent crude advanced 2.2 percent.

The ruble is the second-worst performer in emerging markets this year, threatening to rekindle inflation, as collapsing crude prices weigh on budget revenue. The currency’s 14-day relative strength index has traded under 30, the threshold that signals to some analysts that an asset is oversold, since Jan. 5. Current-account data released on Monday showed the country’s surplus grew 13 percent in last year compared with 2014.

“If the ruble doesn’t weaken to new lows, then we might say that the bottom is behind us,” ING’s chief Russia economist Dmitry Polevoy said on Tuesday. “Current-account data confirmed that there are no clear fundamental reasons for the ruble’s further declines, besides an overall negative speculative mood.”

A ruble level of 78 to 80 against the dollar may be a short-term market target for the ruble, Polevoy said on Jan. 15 in an e-mailed report. Tax-related selling of foreign currency along with an improving current account and lack of panic among households may also help the ruble recover in coming weeks, Polevoy said.

Russia’s 2015 current-account surplus rose 13 percent from a year earlier to $65.8 billion while net capital outflow slowed by 63 percent $56.9 billion from a year earlier, according to Bank of Russia estimates posted on Monday. Net demand for foreign currency among Russian households declined 62 percent to $1.25 billion in November.

The lifting of international sanctions on Iran has helped move the correlation between Brent and the ruble toward its strongest since October. Russia’s budget for 2016 is based on oil priced at $50 a barrel and President Vladimir Putin’s government is weighing austerity measures to counter shrinking revenue.

Crude Advances

Brent crude rose on Tuesday to $29.32 per barrel, climbing from the weakest in 12 years while a gauge of emerging-market currencies increased the most against the dollar since Dec. 23. Caution is needed before declaring the ruble is ready to strengthen significantly, said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London.

“Given that oil prices fell precipitously and the sell-off started to look overdone, a corrective rebound was inevitable,”  Matys said. “It’s too early to judge if we are witnessing the beginning of a sustainable pullback in the dollar-ruble pair as global oversupply is likely to limit scope for a rebound in oil.”

Iran’s return could deepen the crisis as the market “drowns” in oversupply and push prices even lower, the International Energy Agency said today in a report.

The benchmark Micex Index of Russian stocks rose 1.3 percent, climbing for a second day. Russia’s Finance Ministry will offer 20 billion rubles of bonds at two auctions
tomorrow, it said today.

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