Azernews.Az

By Bloomberg

Russian Eurobonds slid, sending yields up the most in four weeks, and the ruble weakened after the sovereign’s second downgrade to junk this year underpinned the country’s deepening economic slump.

The yield on dollar-denominated bonds due in March 2030 jumped 27 basis points to 5.98 percent at 12:53 p.m. in London after Moody’s Investors Service cut Russia to Ba1 on Friday. Perceptions of the nation’s credit worthiness worsened the most since Standard & Poor’s pushed Russia into speculative territory for the first time in a decade on Jan. 26. The ruble fell 3.5 percent versus the dollar in offshore trading as local markets were shut for a holiday.

The downgrade adds to pressure on Russia’s economy, which has been pushed to the brink of a recession in the past year. A second junk rating may force money managers whose guidelines prohibit them from holding debt rated below investment grade to sell, according to Neil Shearing, an economist at Capital Economics Ltd. in London.

“The Moody’s downgrade may have dampened confidence further," Shearing said by phone. ‘‘It’s symbolic in the sense that it shows just how far Russia’s fundamentals have deteriorated over the past year.”

The ruble slid to 64.3006 a dollar. The cost of protecting Russian debt against default for five years using credit-default swaps rose 30 basis points to 525 basis points, according to data compiled by Bloomberg. That makes Russia the fourth- riskiest credit globally, according to data compiled by Bloomberg.

Ukraine, Oil

Depositary receipts of OAO Sberbank, Russia’s biggest bank, fell 5.7 percent in London trading, while OAO Rosneft and OAO Gazprom retreated at least 4.3 percent.

The escalation of fighting in Ukraine may have also weighed on sentiment Monday, according to Shearing. Pro-Russian rebels attacked Ukrainian positions with artillery, mortars and automatic weapons, the Defense Ministry in Kiev said.

A bomb killed two people at a pro-Ukraine rally in the eastern city of Kharkiv. U.S. Secretary of State John Kerry warned Saturday in London more sanctions may be imposed against Russia if violations of the truce continue.

Moody’s cited “the existing and potential future international sanctions, the erosion of the country’s foreign- exchange buffers and persistently lower oil prices” among its reasons for the downgrade in Friday’s report.

Brent crude slid 2.7 percent to $58.58 a barrel, bringing its retreat in the past 12 months to 47 percent. Russia gets about 50 percent of state revenue from oil and gas industries.

“Everyone was expecting a downgrade but it just came a bit earlier than expected,” Peter Montalto, a London-based economist at Nomura International Plc, said by phone. “Locals are likely to come back in tomorrow so there should be some consolidation of the drops today.”