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By Bloomberg

Signs the ruble is stabilizing, a three-week cease-fire in Ukraine and mounting speculation interest rates will keep falling are supporting the longest stretch of bond sales in eight months.

Russia has held seven straight weekly sales this year, the longest run since the downing of a Malaysia Airlines flight over eastern Ukraine in July soured sentiment toward the nation’s assets. The Finance Ministry will tender 15 billion rubles ($240 million) of local-currency notes, known as OFZs, on Wednesday offering the longest-maturity securities since October.

The return of demand at bond auctions may lessen the government’s need to tap Russia’s oil fund as it seeks to plug what’s forecast to be the deepest budget deficit since 2010 this year, exacerbated by sanctions stemming from President Vladimir Putin’s support for insurgents in Ukraine. On March 6, Fitch Ratings cited the nation’s $360 billion of foreign-currency reserves as shielding its investment-grade rating.

“The government will have more resources with the OFZs sales, which means that reserve funds will be less likely to be used,” Konstantin Artemov, who helps oversee 16.3 billion rubles as a money manager at Raiffeisen Capital asset management in Moscow, said by phone on Tuesday. “Oil prices are holding up along with the ruble which has created a positive environment for government bond sales.”

‘Last Chance’

While Brent crude fell 7.2 percent in the last five days, it’s still 25 percent above the six-year low it touched on Jan. 13. This has helped the ruble post five straight weekly rallies to outperform all 24 emerging-market peers in the past month.

Bank of Russia Governor Elvira Nabiullina will probably take advantage of a reprieve to lower the key interest rate by 100 basis points to 14 percent at a policy meeting on Friday, according to the median of 30 estimates in a Bloomberg survey.

The Finance Ministry will offer 15 billion rubles of floating-rate notes on Wednesday, of which 5 billion rubles will mature in January 2025 and 10 billion in December 2017.

“People will buy up bonds on bets that this will be the last chance before a possible rate cut,” Artemov said.

Russia revived demand for local debt since reintroducing floaters in January for the first time in more than a decade as the notes offer investors insurance against inflation, which soared to a 13-year high last month.

More Demand

Last year, the government pulled 27 sales of fixed-rate notes as sanctions over the annexation of Crimea, and the subsequent violence in eastern Ukraine, drove up borrowing costs. Floaters pay a coupon based on the Ruonia interbank rate from the previous six months.

“Floating-rate bonds look attractive to the Finance Ministry and banks, which are betting on rate cuts at the upcoming central bank meetings,” Anton Tabakh, regional ratings director at RusRating, a Russian credit rating company, said by e-mail on Tuesday.

Buying floaters due in 2025 may carry risks, according to Ivan Guminov, a money manager at Ronin Trust in Moscow. Investors who bought bonds linked to the country’s refinance rate incurred “extensive losses” when policy makers started benchmarking the one-week rate instead in 2013, he said.

“Right now the Ruonia rate is high, but nobody knows what’s going to happen to it in one, two, five years,” he said.

Jumpstarting bond sales may help relieve pressure on the country’s $77 billion Reserve Fund, established in 2008 to help cushion against economic slowdowns, in funding a fiscal deficit projected to reach 2 percent of economic output this year. The government sold 87 percent of the debt offered at last week’s auction after issuing the entire amount tendered for three straight weeks. Five-year bond yields climbed eight basis points to 13.68 percent on Tuesday, trimming this year’s drop to 173 basis points. The yield was unchanged at 10:25 a.m. Wednesday.

“The market has calmed down,” Tabakh said. “Successful auctions reduce the government’s need to dip into reserve funds.”