Russian bonds sag on firm equities market

The Russian bonds tumbled on Monday as Russian stocks climbed to the strongest level in almost 3-weeks. The benchmark 10-year bonds yield, which is inversely proportional to bond price rose 0.11 pct to 9.27 pct and 3-year bonds yield jumped 0.53 pct to 9.53 pct 13:00 GMT.

The MICEX Index rose 1 pct to 1,895.74 as Sberbank surged as much as 3.5 pct to 116.90 rubles. The lender, which holds almost half of all household deposits in Russia, has a 13.5 weighting in the MICEX, the second biggest in the 50-stock gauge. The ruble climbed for a second day, appreciating 0.2 pct to 66.9910 against the greenback, the strongest level since 1st December on a closing basis.

The Sberbank reported a 1st Quarter quadrupling of net profit under Russian accounting standards on Thursday as the ruble gained and non-performing loans declined. Moreover, Lukoil, Russia’s 2nd largest oil producer was the next-biggest contributor to the MICEX’s advance, after Brent crude surges 6 pct on Friday, which account for more than half of the stock market.

"This is the reaction to the recovery in the oil price and the ruble", said Olga Naydenova, a banking analyst at BCS Financial Group who rates Sberbank.

While the index has added 7.5 pct since the beginning of the year, Sberbank has advanced almost 14 pct. Those gains mean the lender “doesn’t look cheap,” according to Naydenova.

In addition, the 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. Morgan Stanley in its report said that if oil prices continue to weaken, the rate on 10-year notes will climb by 50 basis points.