Ruble Swings Fall to Two-Year Low as Carry-Trade Bets Offset Oil

  • Rising price of Brent crude helps Russian currency appreciate
  • Russia is fifth-best carry when adjusted for volatility

Ruble volatility dropped to the lowest level in almost two years, bolstering the appeal of Russian assets, as investors sought close to four times the government debt tendered at an auction.

The ruble’s three-month historical volatility fell to 17.4 on Wednesday, the lowest since November 2014, as the currency strengthened 0.6 percent against the dollar to 64.4 as of 5:50 p.m. in Moscow, heading for the highest level since July 20. The bid-to-cover ratio at an auction of 15 billion rubles ($233 million) of fixed-coupon bonds due September 2026 was the highest in two months at 3.91.

Carry traders are piling into Russian assets as they borrow abroad at a low cost and invest where rates are higher, looking to spur returns at a time when yields in developed markets are close to zero or negative. While the ruble is the second-best currency in emerging-markets this year with a return of almost 21 percent, it ranks fifth when adjusted for ruble volatility, according to data showing its Sortino ratio.

“Lower volatility boosts the ruble’s carry appeal even further,” Dmitry Polevoy, chief economist for Russia at ING Groep NV, said by e-mail. “Oil itself is becoming less volatile, and households are getting calmer about the ruble’s prospects.”

The Finance Ministry also sold 6.24 billion rubles out of 10 billion rubles offered of floating-rate notes due January 2025. Brent crude traded 0.3 percent stronger at $45.11 per barrel.

“In longer term fixed-coupon issues the main interest is coming from foreign investors,” said Yakov Yakovlev, a bond strategist at Aton Capital. “Floaters are predominantly for local players, and recent auctions of floaters were rather weak - plain vanilla OFZs look better now.”

The Micex Index of major Russian stocks declined 0.6 percent to 1,950.45. The yield on 10-year government notes declined for a fifth day, extending a decline six basis points to 8.26 percent.

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