The Russian bonds were trading modestly firmer on Thursday as investors were cautious ahead of Central Bank of Russia’s (CBR) monetary policy meeting. Also, bond yields were down as ruble was bolstered by a rebound in crude oil prices, pushing the yield on 10-year bonds down 9 bps. The benchmark 10-year bonds yield, which is inversely proportional to the price of bonds, fell 0.98 pct to 9.12 pct and 3-year bonds yield dipped 0.42 pct to 9.43 pct by 1035 GMT.
The Brent crude oil, a global benchmark for Russia's main export, rose by tracking weak greenback and strong investor sentiment. Meanwhile, Crude oil prices continue to rover around 2016 high and WTI was further supported after the American Petroleum Institute (API) reported a draw of almost 1.1 million barrels in U.S. crude inventories a week ago versus markets desires for a 2.4 million-barrel build in a Reuters survey. The International benchmark Brent futures rose 0.13 pct to $46.99 and West Texas Intermediate (WTI) climbed 0.20 pct to $45.42 by 1040 GMT.
The Central Bank of Russia is likely to hold its key interest rate at 11 pct on Friday during its monetary policy meeting according to Danske Bank. With the appreciating ruble and constant drop in RUB volatility, the central bank is expected to keep a softer tone during the meeting as inflation has slowed down. However, the high base effect will decline in near future that supports the cautious stance of CBR, noted Danske Bank in a research paper.
Meanwhile, the continued rise in oil prices gives leeway for proper guidance from CBR regarding the forthcoming monetary easing. In the past 30 days, the Russian ruble has appreciated on average by 3.9 pct against EUR and 5.7 pct against the US dollar. Even though the market expects the Russian central bank to lower rates sometime in 2016, it is unlikely to take any action on Friday, said Danske Bank. The CBR, during its previous meeting in March stated that it might moderately tighten its policy for a longer period of time than expected earlier.
“We believe a 50bp key rate cut is possible in early Q3 16. Otherwise, we believe any oil price weakening and deterioration of global risk sentiment would shift the cut into Q4 16. We still see the key rate falling to 9.5 pct by the end of 2016”, added Danske Bank.
Meanwhile, the ruble appreciated to 64.70 per dollar by 1040 GMT as Brent rose to high $47.24 a barrel. The Micex Index of equities rose 0.62 pct to 195,200 by 1030 GMT.
Lastly, if unemployment, inflation and GDP growth fail to improve over the coming months, easing will occur sooner rather than later, pushing bonds prices further up.
The material has been provided by InstaForex Company – www.instaforex.com