Looking for Clues on Russian Rates? KOBR Bonds Are Your Friend

(Bloomberg) -- A new debt instrument being issued by the Russian central bank this month will give investors pointers on the direction of interest rates.

The so-called KOBR bonds will have a three-month maturity and a floating coupon that will match the key rate. The lender plans to sell 150 billion rubles ($2.5 billion) of the instruments on Aug. 15 to local investors to soak up excess liquidity in the banking sector, it said in a statement Monday on its website.

“It will be an additional instrument to see how locals feel about the central bank's monetary policy,” said Vladimir Miklashevsky, a senior economist at Danske Bank A/S in Helsinki. “Traders and strategists will get a nice proxy.”

Investors have been monitoring Russia's central bank for clues on the speed and timing of cuts to one of the highest policy rates in emerging markets. Officials paused their easing cycle on Friday after three straight cuts. The KOBR bonds may be placed at more than their face value because rate cuts are seen quickening in the fall, when the central bank plans to meet twice, analysts at Rosbank, the Russian unit of Societe Generale SA, said in a research note.

The auction will be the first sale of short-term debt by Russia since 2011 when it issued so-called OBR bonds without a coupon. Governor Elvira Nabiullina said last year the lender would renew issuance of short-term notes to slow inflation if liquidity returned to a surplus. The surplus is expected to reach 0.9-1.4 trillion rubles by the end of the year, according to Promsvyazbank.

If the central bank starts issuing the debt on a regular basis, it could support the ruble by encouraging banks to sell foreign currency, Miklashevsky said. Analysts at Raiffeisen Bank said the lender may be selling the notes in order to limit losses to the currency, which has fallen 1.9 percent in the past month amid a renewed threat of U.S. sanctions.

--With assistance from Artyom Danielyan and Olga Voitova

To contact the reporter on this story: Natasha Doff in Moscow at ndoff@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Alex Nicholson, Robert Brand