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Bloomberg 08.12.2014 Fedor Bizikov's comment "Russian Bond Yields Rise to Five-Year High as Ruble Drops on Oil"

Russian Bond Yields Rise to Five-Year High as Ruble Drops on Oil
2014-12-08 09:35:59.573 GMT
Dec. 8 (Bloomberg) -- Russian government bonds declined for
a 10th day, pushing 10-year yields to a five-year high, as the
ruble weakened against the dollar and investors bet the central
bank will raise interest rates this week.
The yield on 10-year local-currency bonds rose 18 basis
points to 12.25 percent, at 12:23 p.m. in Moscow, the highest
since August 2009. The rate spiked by 81 basis points on Dec. 5,
capping the worst week for the debt since August 2009. The ruble
fell 1.8 percent against the dollar to 53.4355 as Brent crude
declined 1.3 percent to $68.20 per barrel, approaching a five-
year low reached on Dec. 1.
The Bank of Russia will raise the benchmark rate to 9.63
percent from 9.5 percent on Dec. 11, according to the median of
24 estimates in a Bloomberg survey, adding to this year’s 400
basis points of increases. The premium investors pay for holding
10-year government bonds over the central bank’s key rate spiked
to 257 basis points today from as low as 48 basis points on Nov.
5.
“Investors started pricing in the central bank’s rate
increase, on top of it a drastic one,” Fedor Bizikov, a money
manager at GHP Group in Moscow, said by phone. “This is the
contagion, spreading from the Eurobond market.”
Central bank rate predictions ranged from 9.5 percent to 12
percent, with half seeing no change.
The cost of Russian credit-default swaps rose for the 10th
straight day to a five-year high of 381 basis points on Dec. 5,
the longest run of increases since May 2012, according to data
compiled by Bloomberg.

Ruble Shorts

Russian mutual funds investing in bonds saw 3.4 billion
rubles of outflows in November, the most since April. Their net
assets have declined by a third since the beginning of the year
to 40.2 billion rubles, according to Investfunds.ru web portal.
Hedge funds and other large speculators increased net short
positions against the ruble in the week ended Dec. 2, the first
increase in a month, according to data from the Washington-based
Commodity Futures Trading Commission.
The ruble slid 4 percent last week and touched a record low
on Dec. 3.
The pressure to increase interest rates is evident from
both financial stability and inflation considerations, as annual
inflation rose to 9.1 percent in November, a 41-month high, from
8.3 percent the previous month, according to Vladimir Kolychev,
an economist at VTB Capital in Moscow.
The central bank “might want to be bold and increase rates
by up to 100-150 basis points,” Kolychev said in an e-mailed
note.