Ruble Pares Biggest Quarterly Gain After Brazil as Oil Declines

(Bloomberg) -- Russia's ruble declined with oil, paring the second-biggest quarterly return in emerging markets that bolstered stock prices and helped the government meet its first-half borrowing targets.

The ruble fell for the first time in three days, trimming the currency's gain since March 31 to 4.7 percent, the biggest advance in developing markets after Brazil's real. Sovereign bonds are set to return about 9.6 percent for the period, the second-best performance in emerging markets, while the Micex Index has added 1 percent during the three months.

Oil's rebound from a 12-year low in January has pushed up revenue for the state budget in the world's biggest energy exporter, helping deflect market fallout following Britain's vote to leave the European Union. The ruble weakened on Thursday as crude oil trimmed its biggest quarterly advance in seven years on speculation a global surplus may be easing.

“Today's decline in oil is more short-term,” said Koon Chow, a London-based strategist at Union Bancaire Privee, which oversees $112 billion in assets. “The ruble was able to outperform because it was less vulnerable to contagion from the euro area. In July the ruble is likely to be stable against the dollar as oil prices are likely to be similarly stable.”

Russia, which relies on oil and natural gas sales for about a third of its budget revenue, is more sheltered from the effects of a U.K. exit from the EU, Chow said. Brent crude, used to price the country's main export blend, declined 2.2 percent to $49.50 a barrel as of 7 p.m. in Moscow, paring its biggest quarterly advance since 2009 to almost 26 percent.

The ruble was 0.5 percent weaker at 64.1475 against the dollar after losing as much as 0.9 percent earlier. Five-year bonds gained, pushing the yield down eight basis points to 8.66 percent, the lowest in two years.

“The high yield levels on the ruble are likely to continue to attract carry trade-related inflows,” Chow said. Carry traders have earned a profit of about 21 percent from the ruble this year, the best in emerging markets after the real.

The Finance Ministry may publish its third-quarter borrowing plan today, after it fulfilled its borrowing plan by more than 99 percent for the second quarter in a row.

The state is probably able to borrow as much as 250 billion rubles in the second half and may focus on the long-end of the debt curve “where there is currently more demand,” Sberbank CIB analysts said today in an e-mailed report.

The Micex Index of shares was steady at 1,889.56.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net. To contact the editors responsible for this story: Alex Nicholson at anicholson6@bloomberg.net, Douglas Lytle