Russian Bonds Climb First Day in 11 as Demand Rises at Auction

Updated on
  • Ten-year government bond yields drop for first time in 11 days
  • Ruble trades little changed after 5% slump in last five days

Russian government bonds advanced for the first time in 11 days and the Finance Ministry sold debt with the highest bid-to-cover ratio in more than a month as the ruble’s six-day retreat showed signs of slowing.

The yield on 10-year ruble bonds, known as OFZs, fell six basis points to 8.63 percent, the first decrease since July 12, data compiled by Bloomberg showed. The ruble gained 0.1 percent to 65.875 per dollar as of 4:03 p.m. in Moscow after having depreciated almost 5 percent in the previous six days.

Russian companies are buying rubles to pay their local dividends, giving support to the currency of the world’s largest energy exporter even as crude oil retreats, according to Sberbank CIB, the investment-banking arm of the nation’s biggest lender. At the same time, investors are avoiding any big trades before a Federal Reserve rates decision today as well as Russia’s own meeting on its benchmark borrowing gauge on Friday.

“OFZs are helped by the ruble and the ruble is stable thanks to support from exporters, who are paying dividends today and tomorrow,” Nikolay Minko, an analyst at Sberbank CIB, said. “The ruble was hit hard in the past few days and I think there’s an impact as shorts are closed and profits are taken.”

Eurobond Retreat

The decline in borrowing costs comes as the as the government pushes ahead with its debt-sale plan. The Finance Ministry sold all 15 billion rubles ($227 million) of September 2026 fixed-coupon OFZ bonds at 8.75 percent, in line with yesterday’s closing yield, as investors bid for almost four times the debt on offer, producing the highest bid-to-cover ratio since June 8. The ministry also sold all 10 billion rubles of January 2020 floating-rate securities on offer at a separate auction on Wednesday.

The auctions are the last before the Bank of Russia meets on interest rates on Friday. Most analysts, polled by Bloomberg, see the central bank leaving the key rate unchanged at 10.5 percent.

"Demand for OFZs remains quite high, and investors are still betting on the central bank easing monetary policy in the near future," Andrey Kochetkov, analyst at Otkritie, said by e-mail.

While local bonds climbed, Russia’s Eurobonds due April 2042 headed for a 12th day of losses, pushing the yield up to 4.87 percent and widening the spread to similar-maturity U.S. Treasuries to 312 basis points, the most in a month.

Eurobond investors are wary of Russia’s weakened economy and the possibility of higher rates in the U.S. at the end of the year, Alexander Losev, chief executive officer at Sputnik Asset Management in Moscow, said by e-mail.

"The Russian economy still isn’t growing, and a Fed rate hike at the end of the year is absolutely possible.”

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