BLBG: Russian Bonds Rise as BofA Sees Multi-Year Rally; Ruble Retreats
(Bloomberg) -- Russian domestic bonds jumped as Bank of America Corp. forecast a “multi-year” recovery in prices. The ruble weakened from a 2015 high as oil fell, paring gains made after the Federal Reserve cooled expectations on the pace of U.S. interest-rate increases.
The yield on local-currency government bonds due in August 2023 fell 16 basis points to 13.22 percent after Bank of America said Russian notes present the “strongest macro case” for a rally. The ruble dropped 1.4 percent to 60.1630 per dollar at 1:53 p.m. in Moscow, paring a 3.6 percent surge on Wednesday. The decline tracked crude oil’s 0.9 percent slide to $55.43 against the dollar.
The currency of the world’s biggest energy exporter surged the most in more than six weeks on Wednesday as the Fed statement eased concern tighter monetary policy would curb demand for riskier assets. The ruble has also been supported this week by companies purchasing the currency to make tax payments even as oil trades near the lowest since January.
“The euphoria from yesterday’s Fed statement is over,” Alexei Egorov, an analyst at Promsvyazbank in Moscow, said by phone.“With the end of the tax season, the ruble may weaken. At current oil levels it should be at 64-65 rubles against the dollar.”
The Fed said Wednesday it will need to see more progress in the jobs market and gain confidence that inflation is accelerating, even as it dropped its pledge to be “patient” in its approach to a less-stimulative monetary policy.
‘Bull run’
OFZ bonds are Bank of America’s “top conviction” among local-currency bonds in eastern Europe, the Middle East and Africa, analyst David Hauner wrote in a note.
“Unless geopolitics interferes, we forecast Russian rates are likely to repeat Hungary’s three-year bull market run in the years ahead,” Hauner wrote. “In both markets a crisis put a hard stop to persistently high fiscal and credit impulse, leading to a multiyear deleveraging process and inflation collapsing.”
Hauner forecast the ruble will strengthen 8.6 percent to 55 versus the dollar by the end of the year as monetary aggregates show a decline in money supply.
The BofA Merrill Lynch Hungary Government Index handed investors returns of between 9.8 percent and 22 percent in the past three years. The bank’s Russia index, which lost 17 percent last year, is up 5.1 percent in the first two months of 2015.
Oil’s recovery from a six-year low in January and a cease-fire in Ukraine have bolstered appetite for the nation’s debt and helped the government return to bond markets after canceling 27 sales last year. The Finance Ministry has sold about 90 billion rubles of bonds since the start of the year, more than double the amount it sold in the same period in 2014.
While the cease-fire in eastern Ukraine negotiated last month in the Belorussian capital is largely holding, the sides are trading accusations of violations and blame each other for a lack of effort to achieve a lasting resolution.
To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net
To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Alex Nicholson
