Chinese investors bought as much as $1 billion of ruble debt this year and Russia counts on them purchasing more as the country heads for its widest budget deficit in five years. Bonds rose the most in four weeks.
The Chinese bought from 50 billion to 60 billion rubles ($877 billion to $1.1 billion) of local-currency bonds, Finance Minister Anton Siluanov told state channel Rossiya 24 at a BRICS summit in the Russian city of Ufa Thursday. Yields on five-year OFZ notes fell 10 basis points, the most in a month, to 11.19 percent, as of 5:37 p.m. in Moscow.
The announcement came as Russia faces its widest deficit since 2010 after sanctions over the nation’s role in Ukraine and a slump in oil pushed the economy toward recession and increased its reliance on debt funding. At the same time, a series of central-bank rate cuts and a fragile truce in eastern Ukraine have helped buoy appetite for local bonds this year, making the notes the best performers among emerging markets.
While the Chinese purchase is equivalent to about 1 percent of the OFZ market, “any new buyer is positive for investor sentiment,” Dmitry Postolenko, a money manager at Kapital asset management in Moscow, said in e-mailed comments. “It was more of a political gesture, as our Chinese partners so far prefer investing in concrete projects, rather than the state debt.”
Russia will ask China’s government to allow its banks to invest in local bonds and is ready to reciprocate by buying Chinese notes, Siluanov said at the summit the day before. Russia’s budget shortfall is expected to swell to 2.7 trillion rubles in 2015 and persist for at least two more years.
“After buying the first lot of these bonds and realizing that they’re a good, safe investment, our Chinese partners may expand their investments into the Russian economy,” Siluanov said Thursday.
The ruble gained 1 percent against the dollar to 56.9610 and the Micex Index of stocks rose 0.7 percent to 1,605.95, set for the first advance in five days. Of 50 shares on the Micex, 14 traded above their 50-day moving average on July 8, the lowest level since Oct. 23.
original source: http://www.bloomberg.com/news/articles/2015-07-09/china-buys-1-billion-of-ruble-debt-as-russia-touts-local-market