Rouble steadies near 104 vs dollar, volatile OFZ bonds resume trading

(Reuters) -The Russian rouble steadied near 104 to the dollar on Monday and OFZ treasury bonds returned to trading in volatile fashion, while investors kept an eye on Russia’s ability to service state debt and pay coupon on its Eurobond.

By 1222 GMT, the rouble gained 0.4% to 104.50 against the dollar and had lost 0.4% to trade at 115.23 versus the euro.

The bond market was focusing on clues on Russia’s state finances as the country looks to gradually resume operations on its financial markets.

On Monday, Russia has to pay a $65.6 million coupon to holders of its 2029 Eurobond but the finance ministry has the right to pay creditors in roubles if they had asked to receive their interest in the Russian currency.

Yields on the 2029 paper, which move inversely with their prices, stood at 43% compared with 4.5% seen a month ago before Russia started what it calls a “special operation” in Ukraine.

Despite mounting concerns about Russia’s ability to service debt, it paid coupons on two Eurobonds in dollars last week, meaning it has averted what would have been its first external bond default in a century.

OFZ TRADING RESUMES

The central bank said it would begin buying OFZ bonds when the Moscow Exchange resumed trading those papers on Monday, hoping to limit volatility, as it also held its key interest rate at 20% last week after an emergency rate hike in late February.

Prices on some rouble-denominated OFZ bonds tumbled by a third in pre-market trade before trading on the main session resumed at 1000 GMT, Moscow Exchange data showed.

But the central bank’s buying of OFZ bonds saved them from falling further, market players said.

The central bank put bids for some of OFZ series of 80 billion roubles to 120 billion roubles ($0.77-1.15 billion), asset managers at Locko Invest firm said in a note.

“That’s a lot,” they said.

The yield on Russia’s benchmark 10-year OFZ bonds, rose to a record 19.74% in pre-market trading, before settling near 13.9% in the main trading session, Refinitiv Eikon data showed.

The central bank’s intervention on the market should provide extra liquidity to the banking system and help the bond curve adjust to the new environment, SOVA Capital said in a note, with short-term rates remaining close but above the current key rate of 20% and the curve being inverted.

Russian banks will be the main players on the OFZ market while non-residents will seek to exit the market to the extent possible as the papers, which foreign investors used to like thanks to appealing yields, were excluded from global indexes, VTB Capital said .

For now, sales of OFZ bonds by non-residents, who owned 19.1% of all such bonds as of early February, will not be authorised between March 21 and April 1, Moscow Exchange said on Monday.

Those investors will be able conduct repo and derivative transactions and, when stock…