Russian bonds & ruble gain on expectation Central Bank will hold rates steady

© Maxim Zmeyev
Russian government bonds and currency advanced for the second straight day on investors assuming the central bank will keep the benchmark interest rate unchanged. It’s sparked demand for Russian bonds with the highest emerging markets yields.

With ultra-low key rates set by the regulators in Europe, the UK, Japan and the US, Russian government obligations are currently extremely attractive for investors. The rate on 10-year bonds dropped two basis points to 8.34 percent.

The ruble advanced 0.3 percent against the US dollar to about 62.19 after Brent crude hit $51.92 a barrel climbing for a second day in row.

The national currency along with the Russian assets are also gaining from local tax payments as well as speculation OPEC members will manage to push oil prices up by capping output.

The Russian Central Bank is expected to keep the key rate unchanged at 10 percent during this week's meeting. Governor Elvira Nabiullina promised to hold off on rate cuts until next year. The move makes ruble assets appealing as so-called carry trade, when investors borrow where rates are low and invest in higher yielding securities.

“The carry trade is pushing both the ruble and the OFZs (10-year bonds) higher as the European Central Bank remains on the easing side and the Fed doesn’t sound hawkish,” said Alexander Losev, CEO at Sputnik Asset Management in Moscow, as quoted by Bloomberg.

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The analyst predicts the ruble would probably drop 11 percent to 70 to the dollar by the end of the year as the US Federal Reserve may tighten its monetary policy.

According to data compiled by Bloomberg, selling dollars to buy rubles has brought investors 28 percent this year, the second-highest return among emerging market currencies.