Russian bonds climb as China purchases $1 billion of ruble debt
By Bloomberg
Chinese investors bought as much as $1 billion of ruble debt this year and Russia is counting on them purchasing more as the country heads for its widest budget deficit in five years. Bonds rose for a second day.
The Chinese bought from 50 billion to 60 billion rubles ($877 billion to $1.1 billion) of local-currency bonds, Finance Minister Anton Siluanov said in an interview with Rossiya 24 television on the sidelines of a BRICS summit in the Russian city of Ufa Thursday. Yields on five-year OFZ notes fell five basis points, the most in a week, to 11.24 percent. The ruble gained 0.7 percent against the dollar to 57.0850 as of 1:52 p.m. in Moscow.
The announcement comes as Russia faces its widest deficit since 2010 after sanctions over the nation’s role in Ukraine and a slump in oil pushed the economy toward recession and increased its reliance on debt funding. At the same time, a series of central-bank rate cuts and a fragile truce in eastern Ukraine have helped buoy appetite for local bonds this year, making the notes the best performers among emerging markets.
While the Chinese purchase is equivalent to about 1 percent of the OFZ market, “any new buyer is positive for investor sentiment,” Dmitry Postolenko, a money manager at Kapital asset management in Moscow, said in e-mailed comments. “I think it was more of a political gesture, as our Chinese partners so far prefer investing in concrete projects, rather than the state debt.”
Russia will ask China’s government to allow its banks to invest in local bonds and is ready to reciprocate by buying Chinese notes, Siluanov said at the summit the day before. Russia’s budget shortfall is expected to swell to 2.7 trillion rubles in 2015 and persist for at least two more years.
“After buying the first lot of these bonds and realizing that they’re a good, safe investment, our Chinese partners may expand their investments into the Russian economy,” Siluanov said Thursday.
The Micex Index of stocks rose 0.7 percent to 1,605.95, heading for the first gain in five days.