LONDON: Russian 10-year rouble bond yields surged above 11 percent on Wednesday for the first time since 2009 and rouble volatility was at record highs even though apparent central bank action lifted the currency off all-time lows.
Other emerging markets were also pressured by a stronger dollar, with some currencies such as the Malaysian ringgit and the Indonesian rupiah at five-year lows. MSCI's emerging share index was down 0.3 percent, though Chinese shares scaled new three-year highs .
The Russian and Nigerian currencies opened more than 1.5 percent lower .
The rouble then jumped 2 percent as traders said the central bank had stepped in, but rouble losses have mounted this week despite some oil price stabilisation.
Analysts polled by Reuters raised their forecasts for end-2014 Russian inflation to 9.3 percent. Domestic bond yields jumped 25 basis points to 11.04 percent, taking them up 350 bps this year.
"The market is trading as if it's broken, there's been no correlation with oil prices in the past few sessions and that's an indication that panic is setting in," said Manik Narain, a strategist at UBS. He said inflation looked headed to 11 percent in early-2015, and with markets expecting an interest rate rise of 100 bps next week, bond yields are taking the hit.
"Mark-to-market losses on rouble bonds is getting so large, people are getting stopped out of positions. The risk is you will see more losses in this market." Rouble volatility, a gauge of expected swings in a currency, hit new record highs with one-month vols at 46.7 percent and three-month vols above 30 percent.
Headwinds are also growing for Russian companies, Moody's said, noting 36 percent of companies carried negative ratings outlooks versus 11 percent a year ago.
Russian spreads on the CEMBI corporate bond index jumped to 750 bps, up 100 bps in December while sovereign spreads widened another 11 bps to 456, a fresh five-year high . The Polish zloty firmed to four-month highs versus the euro before a central bank meeting when interest rates are expected to stay unchanged.
The shekel fell to new two-year lows hurt by Israel's political crisis.
Brazil is expected to raise rates by half a percent.
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