Russian bond yields fall on strong ruble

The Russian 10-year bond yields dropped two basis points on Monday as the ruble gained 1.2 pct to 67.6450 per dollar. Also, Bank of Russia’s unexpectedly hawkish turn at its last rate meeting and the slump in oil prices are casting a shadow on the Russia long-term debt.

Moreover, Morgan Stanley in is report said that if oil prices continues to weaken, the rate on 10-year notes will climb by 50 basis points.

“Brent, the benchmark grade for more half the world’s oil, retreated 1.85 last week to $40.44 per barrel. While an average price of $45 this year would allow the central bank to tackle the country’s recession with a 2 percentage-point rate cut,” said Kouzmin at Ren Capital.

Lastly, we foresee that the U.S. economy grew more than forecast in the fourth quarter may bring further headwinds for oil and Russian assets in the near future and Russian bonds yields need to rise further to make bonds attractive.