ROUBLE & OIL PRICES DOWN
According to BLOOMBERG, Russia's ruble fell as government bonds dropped for a third day, complicating the Finance Ministry's biggest debt offering in almost two months.
The ruble weakened 0.4 percent against the dollar while the yield on five-year notes rose seven basis points to 8.79 percent, extending the increase this week to 24 basis points. The Finance Ministry will offer to sell 30 billion rubles ($464 million) of fixed- and floating-rate OFZ bonds at auctions on Wednesday, its biggest auction since May 11.
Russia is on course to post its widest budget deficit since 2010 after oil prices tumbled to a 12-year low in January, reducing revenue for the state budget in the world's largest energy exporter. Rebounding crude prices helped drive down yields by almost four percentage points in the first half. The recent uptick suggests it may become more expensive for the ministry to meet its target for 240 billion rubles in borrowing in the last six months of 2016.
"They'll need to offer a significant premium to sell the fixed-coupon note," said Alexander Sychev, a credit analyst at Societe Generale SA unit Rosbank in Moscow. The state may have decided the low yields through last week had generated sufficient demand to offer a larger amount of bonds, he said.
The ruble fell to 64.645 per dollar by 11:49 a.m. in Moscow, bringing the three-day decline to 1.3 percent. Brent oil traded 0.6 percent down at $47.66 per barrel after plunging 4.3 percent on Tuesday. The Micex Index of stocks fell 0.6 percent.
The state will offer 20 billion rubles of new September 2026 fixed-coupon notes and 10 billion rubles of January 2025 floaters.
"OFZs are under pressure on the back of sliding oil and ruble devaluation," Yakov Yakovlev, a fixed-income analyst at Aton Capital in Moscow, said by e-mail. Given the recent decline in bond prices, the state may have to sell the new 10-year notes at about 8.5 percent, he said.
Investors may also be wary of news that the Finance Ministry plans to quadruple net debt borrowing next year to about 1.29 trillion rubles, Yakovlev said.
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