Azernews.Az

By Bloomberg

The ruble headed for its longest winning streak since November and Russian bonds climbed as the Finance Ministry sold all the debt it offered at its first auction on Wednesday.

Russia’s currency traded 2.4 percent stronger at 53.7140 versus the dollar by 1:59 p.m. in Moscow, extending this month’s advance to 13 percent, the most in the world. The yield on five- year government bonds fell six basis points to 11.98 percent, the lowest in a week and a half. The Finance Ministry sold all 10 billion rubles ($187 million) of August 2023 local-currency bonds at its first auction as investors sought doubled the amount offered.

The cease-fire in Ukraine, oil stabilizing above a six-year low and the prospect of further central-bank rate cuts have triggered a rebound in Russia’s bonds and the currency this year. Still, the currency’s relative strength index rose to 75 today, the highest level since September 2013 and above the 70 level that indicates to some analysts that an asset is overbought.

“Foreigners are buying rubles as the biggest foreign-debt payments are behind us and the geopolitical situation has stabilized,” Alexei Egorov, an analyst at Promsvyazbank in Moscow, said by phone. “Oil has been demonstrating steady gains and trading above $55, which is a comfortable level for the Russian market.”

The central bank has cut rates twice this year after an emergency 650 basis-point increase in December at the height of Russia’s market turmoil. The more dovish policy has boosted the outlook for bonds, helping the country’s local debt return 25 percent this year, the most in emerging markets. Crude oil, Russia’s main export earner, has climbed 6.2 percent this week to $58.33 per barrel in London.

Biggest Auction

The Bank of Russia will continue to lower its key rate as inflationary risks ease, central bank Governor Elvira Nabiullina said Tuesday in Moscow at a meeting of the Association of Russian Banks. Egorov predicts the Bank of Russia will cut its key rate 100 basis points to 13 percent on April 30 and continue reducing it to as low as 10 percent by the end of the year.

“Russian OFZs are the most interesting trade in global fixed income at the moment,” Konstantin Nemnov, who oversees $1 billion as the head of fixed income at TKB BNP Paribas in St. Petersburg, said by phone. “Everyone is buying OFZs.”

The ruble went from being the worst major currency in the world last year to the best performer in 2015. The recovery helped lure the Finance Ministry back to the local debt market after it axed 27 sales last year.

Increase Duration

The ministry is due to auction an additional 15 billion rubles of December 2017 floating-coupon bonds on Wednesday, making the total offering the biggest since January 2014.

The ruble-denominated Micex index of stocks fell 1.3 percent, the second day of declines, with OAO Lukoil dropping 1.8 percent and OAO Rosneft declining 2.1 percent. The dollar- denominated RTS Index climbed 1.3 percent.

Investors should increase the duration of Russian ruble bonds to 5.4 years from 3.7 years, Citigroup Inc. analysts, including London-based Luis Costa, wrote in an e-mailed note Wednesday. “We are finally seeing investors warm up to ruble risk,” they wrote.