Russian Bonds Trade at Three-Week Low as Investors Hedge Supply

  • Ruble falls after Putin warning on strength versus commodities
  • Government to sell 25 billion rubles in bond auction Wednesday

Russian bonds fell for a third day as investors bet on future declines for long-maturity notes before a government bond auction Wednesday.

Ten-year yields rose one basis point to 8.51 percent, the highest since June 27 and a 15 basis-point increase in the past five days. The ruble weakened 0.9 percent to 63.3825 at 6:46 p.m. in Moscow after President Vladimir Putin said it had appreciated too much relative to commodities.

Analysts at the investment banking arm of Russia’s second-biggest lender warned that the longer maturity debt could weaken further as the government prepares to quadruple its local-borrowing plan. The Finance Ministry said it will offer 15 billion rubles ($237 million) of fixed-rate notes due August 2021 and 10 billion rubles of January 2025 floating-rate notes.

"New supply is set to grow on the medium-term horizon,” VTB Capital analysts Maxim Korovin and Tatiana Chernyavskaya said. “We think it would be skewed to the longer end in order escape excessive refinancing risks."

Putin Warning

The ruble’s strength is undermining the local-currency value of Russia’s exports and the government’s earnings from oil. Brent in rubles at 2,975 is near the lowest level since May, and about 6.4 percent below the average level on which the budget for this year is based. The Russian currency has gained almost 24 percent in the past six months, the most of any major world peer after Brazil’s real.

Russia needs to think what must be done in near future as the ruble’s appreciation outstrips commodity prices, RIA Novosti reported, citing Putin speaking at meeting with Prime Minister Dmitry Medvedev.

“Putin’s comments come at a time when the government is very concerned about the budget,” Alexei Egorov, an analyst at Moscow-based Promsvyazbank, said by phone. “The market is afraid that the central bank will come out with interventions. The country’s leadership understands that it needs to boost the ruble price of oil, and they can only do that at the current oil price by weakening the ruble.”

The Micex Index of major stocks fell 1.2 percent to 1,913.56 as index heavyweights Gazprom PJSC and Transneft PJSC traded without the right to receive a dividend.

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