Ruble Climbs for Fourth Day as Fed Bets Boost Carry Credentials

  • Russia sells all local bonds offered at Wednesday’s auctions
  • Ruble carry trade return this year is best after Brazil

The ruble headed for the longest streak of gains in a month and stocks advanced on speculation the Federal Reserve will prolong the near-zero rates that have sent investors to Russia chasing higher yields.

The Russian currency added 0.3 percent to 64.39 against the dollar by 4:45 p.m. in Moscow in its fourth daily advance. The RTS Index of stocks increased 1.1 percent to the highest level since May 2015. Brent oil traded 0.5 percent stronger at $47.51 a barrel.

Russia has been the focus of one of the world’s most profitable currency carries this year, where traders fund purchases of the ruble using dollars. After delivering a 22 percent return in 2016, outstripping all peers except Brazil, the strategy is on pace for fourth-quarter gains forecast at 2.3 percent, the most in emerging markets. As oil prices find a floor, price swings in the ruble have smoothed out to levels that pre-date the currency’s free-float in November 2014, a bonus for investors who track their returns adjusting for volatility.

“Attractive ruble carry favors a bullish bias in the ruble against the dollar in the current positive global environment,” said Piotr Matys, a currency strategist at Rabobank in London, who sees the ruble strengthening to 63.391 per dollar in the short-term.

Even though the Bank of Russia is forecast to restart its easing cycle when it meets on Sept. 16 by cutting the benchmark 50 basis points to 10 percent, the rate will remain among the world’s highest, dwarfing those in developed markets. The odds of a Fed hike on Sept. 21 dropped to 20 percent in the futures market this week.

Five-year bond yields fell seven basis points to 8.3 percent, the lowest since July 2014. The Finance Ministry sold all 5 billion rubles ($78 million) of September 2026 fixed-coupon OFZs and 10.7 billion rubles of Dec. 2017 floating-rate notes on Wednesday. The demand for 10-year notes was 14.7 billion rubles and 33.3 billion rubles for 2017 floaters.

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