Ruble Gains on Oil as Credit Risk Falls on Easing Crimea Tension

  • Investors comforted by lack of headlines over weekend: Nomura
  • Hedge funds trimmed bets last week that ruble will climb

The ruble advanced the most in emerging Europe and the cost of insuring Russian debt against default dropped as calls for an easing of tensions in Crimea allowed investors to focus on the rally in oil.

The currency climbed 1.2 percent as Germany said it’s suggesting ways to address a renewed confrontation between Russia and Ukraine. The advance reversed losses on Friday triggered by a threat from President Vladimir Putin to respond to what he called Ukraine’s “terror” tactics in Crimea. Brent crude extended its advance above $48 a barrel after posting the biggest weekly increase since April.

Assets of the world’s biggest energy exporter decoupled from the rally in oil late last week as a flare-up in the Black-Sea peninsula Putin annexed in 2014 brought political risk back to the fore, causing a spike in the cost of insuring Russian debt against default. Investors waiting to see whether the conflict would escalate were encouraged on Monday as Foreign Minister Sergei Lavrov said the nation will use its influence with pro-Russian separatists in eastern Ukraine to reduce tensions.

“Today’s buying in the ruble is likely to be related to the recent gains in oil,” said Dmitri Petrov, an analyst at Nomura International Plc in London. “The market has been somewhat cautious on Russian assets after the political headlines last week. The fact that it has been quiet over the weekend gives people the comfort to buy.”

The ruble weakened to 64 against the dollar at 6:07 p.m. in Moscow, while the yield on 10-year local-currency bonds declined two basis points to 8.34 percent. Five-year credit-default swaps fell seven basis points to 224, curbing an increase since Putin’s comments to 14 basis points.

Petrov predicts the ruble will lag the rally in oil, trading near 64 to 65 against the dollar this month, as investors keep in mind statements from government officials in the past month on their desire for a weaker currency. Moody’s Investors Service, which rates Russia one step below investment grade, warned that any escalation in fighting with Ukraine would “undermine investor confidence and eventually thwart Russia’s incipient economic recovery, a credit negative.”

Hedge funds trimmed bets for an appreciation for the third week in a row, data showed on Friday. Speculators were net long the ruble by 7,058 futures in the week ended Aug. 9 from 8,265 a week earlier, according to U.S. Commodity Futures Trading Commission data.

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