Bullish investors are flocking to bet on Russian bonds after central bank head Elvira Nabiullina suggested more rate cuts were in the offing.
Ten-year yields fell below 6 per cent for the first time in at least a decade this week.
Earlier in February Nabiullina announced her sixth consecutive interest rate cut. She suggested that she was willing to ease monetary policy below the 6-7 per cent range the central bank had previously mooted.
Leading economists are now predicting at least 50 basis points of further reductions in 2020. Investors made 34 per cent returns last year, sinking $16bn into the market.
“The dovish shift in the monetary policy stance” is “the primary driver” of the bond rally, ING economist Dmitry Dolgin told Bloomberg. “Previously, expectations of the key rate dropping below 6 per cent were considered optimistic, now the 5.5 per cent floor is seen as the base case.”
Russia’s real interest rates are still among the highest of those in emerging markets and the country’s annual inflation slowed for a tenth straight month to 2.4 per cent in January, well below the central bank’s 4 per cent target.
Increased foreign purchases of ruble bonds are helping to keep the currency afloat amid slumping oil prices so far this year, according to a note from analysts at PJSC Raiffeisenbank in Moscow.