Rouble climbs to near-month high after bond auctions

MOSCOW: The Russian rouble strengthened to its highest level in nearly a month against the dollar on Wednesday after strong demand in two government bond auctions that serve as a gauge of global market sentiment toward Russian assets.

The rouble was 0.3 percent firmer at 63.91 as of 1430 GMT, its strongest level since March 22. The Russian currency traded 0.2 percent stronger against the euro at 72.17 .

The Russian finance ministry, which auctions OFZ bonds weekly, said it had sold a combined 124.63 billion roubles  ($1.95 billion) worth of bonds, close to the record of $2.13 billion it had sold last week.

On Wednesday, demand for OFZ bonds due in 2026 reached a record 132.1 billion roubles ($2.07 billion), the ministry said.

The main idea driving the OFZ market at the moment is expectation that the Russian central bank will cut its rates this year, said Dmitry Gritskevich, an analyst at Promsvyazbank.

The central bank's rate cuts drive the yields of OFZ bonds down, which in turn boosts their prices.

The Bank of Russia, which held the key rate at 7.75 percent last month, will hold its next rate-setting meeting on April 26.

After two successful auctions, the ministry cancelled a third one for inflation-linked bonds maturing in 2028 , citing the absence of bids at an acceptable price.

It was the first time this year that the ministry cancelled a weekly OFZ auction, something it had to do several times in 2018 amid threats of more U.S. sanctions against Moscow.

This year, demand for OFZ bonds was on the rise after months of uncertainty surrounding possible new U.S. sanctions on Russian debt holdings.

Analysts had expected the auctions to draw high demand, including from foreign investors.

"The rouble could strengthen on the backdrop of increased investor appetite for risk and demand for OFZ bonds by non-residents," analysts from Sberbank Investment Research said in a note.

More than a quarter of OFZ bonds are currently held by foreign investors. Central Bank Governor Elvira Nabiullina said this month that non-residents were expected to increase their share of holdings in the bonds.

The rouble and Russian stocks were also buttressed by Brent oil prices climbing above $72 a barrel on steady economic growth in China and a fall in U.S. crude stocks.

The dollar-denominated RTS index was up 0.9 percent at 1,266.32 points, while the rouble-based MOEX Russian index  was 0.3 percent higher at 2,568.13 points.