Ruble Carry Lures Traders as Russia Leads Emerging-Market Rally

  • Russia’s currency gains for a fifth day as oil rebounds
  • Country has given traders second-best carry returns in 2016

The ruble rallied the most in emerging markets as Brent crude climbed toward $45 a barrel, improving Russia’s revenue outlook as investors seek to take advantage of this year’s second-best carry trade.

The Russian currency appreciated 1.1 percent to 64.8675 per dollar by 4:39 p.m. in Moscow, gaining for a fifth day, as crude increased 1.7 percent in London. Investors who borrow in dollars to invest in debt of higher-yielding currencies have taken home 20 percent returns this year, the most worldwide after Brazil’s real. Yields on Russian government bonds dropped for a third day.

"Investors are looking for yields, and the ruble is one good carry trade,” said Yann Quelenn, a market strategist at Swissquote Bank SA. “The ruble is now a sort of yield safe haven."

With benchmark interest rate of 10.5 percent, Russia has become a refuge for investors seeking to escape near-zero rates in much of the developed world, while central banks keep policy loose to stimulate the global economy. Oil’s recovery after touching a four-month low last week has renewed appetite in the nation’s assets since the government gets more than half of export revenue from the commodity and gas.

As Russia’s 10-year local-currency debt climbed on Monday, yields fell nine basis points to 8.36 percent, the lowest level in almost a month. The Micex Index of equities increased 0.4 percent. Companies on the 50-member gauge offer an average dividend yield of 4.5 percent, compared with 2.6 percent for MSCI Emerging Markets Index, according to data compiled by Bloomberg.

"We strategically expect a global compression in yields, and Russia is getting sucked into this vortex," Vladimir Bragin, the head of research at Alfa Capital in Moscow, said by e-mail.

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