Eurobond prices markedly higher in week
MOSCOW. Feb 26 (Interfax) - Prices for the majority of Russian Eurobonds were markedly higher in the latest week thanks to rising oil prices and ruble strengthening, while US Treasuries were virtually unchanged amid rising "demand for risk," resulting in a narrower spread between the two benchmark issues.
Eurobond prices rose on the first day of the holiday-shortened week as stocks advanced on exchanges in Europe and the U.S. Oil prices moved higher on optimism concerning the agreement between Russia and other major oil exporters to freeze production.
Prices retreated a bit on the next trading day, Wednesday, as oil prices corrected downward. The ceasefire deal in Syria brokered by Russia and the U.S. fanned hopes that tensions between the two countries would ease. Meanwhile, Iran poured cold water on hopes it would join the production freeze, with Oil Minister Bijan Namdar Zanganeh calling the idea "ridiculous." He said Iran would focus on winning back market share it lost while under sanctions.
Eurobond gains resumed on Thursday. The reported warning from U.S. government officials to U.S. banks not to take part in an upcoming Russian bond sale had no discernible effect. The Wall Street Journal reported that the officials said participation by U.S. banks runs counter to U.S. foreign policy, even if it is not explicitly prohibited by the sanctions. On Friday, Eurobonds followed oil prices higher.
Russia's benchmark 2030 bond rose 0.48% in price to 122% in the week as a whole. Spread between these and five-year UST narrowed 16 basis points to 128 bps on February 26.
The 2043 bond rose 2.4% in the week. The 2042 bond was up 2.5%: spread between these and UST with the same maturity narrowed 23 bps to 393 bps. The 2023 bond grew 1.5%, with spread narrowing 25 bps to 293 bps, 2020 rose 0.5% and 2018 was up 0.37%.
Russian Eurobonds could decline slightly in the coming week in a downward correction against the backdrop of forecast worsening of the situation on global capital markets and oil prices, the Interfax Center for Economic Analysis said.
Negative factors include concerns about slowing growth in China and the U.S., the continuing oversupply of oil, and rising risks in many countries dependent on oil and gas exports. In addition, the oil production freeze agreement is unlikely to be joined by all the remaining OPEC members, which will put further downward pressure on oil prices. Nonetheless, Russia can count on continuing demand for its sovereign bonds, since its financial condition is not the worst among the countries heavily dependent on oil exports.
