Ksenia Galouchko Vladimir Kuznetsov
(Bloomberg) -- Russian stocks and bonds climbed, while the ruble swung between gains and losses as traders weighed the chances that a cease-fire in Ukraine will stave off the threat of further sanctions.
The ruble rebounded by as much as 1.2 percent before trading 1.9 percent weaker at 66.4940 by 4:11 p.m. in Moscow. While investors are waiting to see if the accord holds, the agreement limited the threat of further international sanctions against Russia, according to Otkritie Asset Management.
Failure to reach a deal at all-night talks in Belarus could have triggered new European Union penalties, boosting pressure on Russia’s economy as it heads for recession amid falling prices of oil. The nation’s borrowing costs remain almost six percentage points higher than they were on Feb. 28 last year, before President Vladimir Putin’s annexation of Ukraine’s Crimea peninsula and the start of fighting between pro-Russian rebels and government forces in east Ukraine.
“This deal reduces the risk of new Russia sanctions,” Vitaly Isakov, a money manager at Otkritie in Moscow, said by e-mail. “The key thing is that terms of the agreement are actually complied with. If military activities resume, markets will react in a negative way.”
The RTS stock index rose 2.8 percent to 855.79, heading for the highest close since Dec. 9, according to data compiled by Bloomberg. Five-year government bonds climbed for a second day, reducing the yield 13 basis points to 13.68 percent.
“We agreed on the main things,” Putin told reporters after talks with the leaders of Ukraine, Germany and France. The cease-fire starts midnight, Feb. 15.
‘Big Effort’
While the accord gives “great hope,” there is still a “big effort to make” on Ukraine talks, German Chancellor Angela Merkel said after the talks in Minsk, Belarus.
The collapse of previous cease-fires has stoked skepticism as to whether this one will hold. Fighting has killed more than 5,000 people, ravaged Ukraine’s economy and has helped propel Russia toward its first economic contraction since 2009.
Ukraine’s hryvnia weakened 2.6 percent to 26.6810 per dollar, while the government’s Eurobonds due April 2023 rose for a fifth day, reducing the yield 12 basis points to 18.61 percent.
Ukrainian President Petro Poroshenko said control of Ukraine’s border with Russia would revert back to his government by year-end, contingent on a constitutional overhaul. While he also pledged to decentralize some powers away from Kiev, he rejected autonomy for the two eastern regions and refused to switch to a federal system of governance.
Volatility Continues
Even after its gains this week, the Russian currency has weakened 8.3 percent this year, making it the worst-performing emerging-market currency in the period. Traders are betting that the ruble’s fluctuations will continue. Three-month implied volatility, predicted by options, is the most in the world and more than twice as high as the second-ranked Brazilian real.
“It looks like a major breakthrough towards a full political settlement of the crisis,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America Corp. in Moscow, said in an e-mailed note on Thursday. “Implementation is clearly a big question mark.”
original source: http://www.bloomberg.com/news/articles/2015-02-12/ruble-rebounds-russian-stocks-surge-on-ukraine-cease-fire-deal