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By Bloomberg

The rally that’s made the ruble the best- performing major currency in the past month is coming to an end as oil slides to a six-week low.

The ruble is about 10 percent overvalued after gaining 2.5 percent since Feb. 17, even as crude dropped 16 percent, according to TKB BNP Paribas Investment Partners. There’s a 61 percent chance of the Russian currency weakening by such an amount by June 30, options data compiled by Bloomberg show.

With a fragile cease-fire holding in Ukraine, investor attention is back on the drop in oil, after crude’s gains underpinned a recovery in Russian assets this year. The ruble’s advance after a 46 percent tumble in 2014 has allowed policy makers to reduce interest rates twice and is stoking forecasts for more easing as it drives flows into the country’s bonds.

“The ruble is overvalued considering the oil price,” Konstantin Nemnov, who oversees $1 billion as the head of fixed income at TKB BNP Paribas in St. Petersburg, said by phone on Tuesday. “The ruble is one of a few emerging-market currencies that has done pretty well versus the dollar this month, this has supported Russian local-currency bonds.”

Oil prices may be poised to fall further, according to Goldman Sachs Group Inc., which forecasts a 20 percent drop in the Standard & Poor’s GSCI commodity index over six months as supplies rise. The month-old Ukraine truce was looking shaky on Tuesday after three government soldiers were killed by pro- Russian rebels, according to the nation’s military.

Nabiullina’s Cut

While Russia’s local-currency debt is still beating average returns for emerging markets tracked by Bloomberg this month, the yield on state debt due February 2027 jumped 59 basis points in the past three days to 13.12 percent.

Yields have risen since central bank Governor Elvira Nabiullina’s 100 basis point rate cut on Friday. The cut, which was in line with economists forecasts, was less than the reduction seen by the majority of bond, rates and currency traders in a Tradition brokerage survey.

Even as Nabiullina weighs the need for lower borrowing costs against protecting a currency that’s still 41 percent weaker than a year ago, Richard Segal, the head of emerging- market credit strategy at Jefferies Group LLC in London, says she’ll push on with cuts, giving strength to bonds.

No Setback

“I don’t see much scope for a bond market setback,” Segal said by e-mail on Monday. “There’s clearly a bias toward further easing, plus, the ruble hasn’t responded much to the plunge in oil prices.”

Russia has shown it’s prepared to tolerate steep slumps in the ruble after the central bank abandoned regular currency interventions to preserve reserves and moved to a free floating exchange rate last year. The weaker ruble bolsters revenue in a country that gets half its budget revenue from oil and natural gas sales.

Brent crude traded at the equivalent of 3,264 rubles a barrel on Tuesday, 11 percent below the average for the past 12 months. Oil was 1.7 percent lower on Tuesday at $53.02 a barrel and the last time the contract was near that level in January, the ruble was trading at 68.73 against the dollar. The ruble climbed for a second day, adding 0.8 percent to 61.71 as of 6:44 p.m. in Moscow.

“I would still expect the ruble to weaken, should oil price continue its decline,” Viktor Szabo, a money manager who oversees $12 billion of developing-nation debt, including OFZs, at Aberdeen Asset Management Plc in London, said by e-mail on Tuesday. “Probably the local bond market will also stop rallying.”