Russian bonds slump on tracking weak oil prices

The Russian bonds declined, pushing the yield on 10-year bonds up 3 bps to 9.22 pct, tracking weak crude oil prices on Tuesday. Moreover, Brent crude oil, a global benchmark for Russia's main export, was down 0.93 pct at $37.34 a barrel. 

The crude oil prices fell after Iran indicated it would continue to increase production and exports until it reaches the market position it enjoyed before the imposition of sanctions. Russia's oil production rose 0.3 pct to 10.91 million barrels per day in March, its highest level in nearly 30 years, raising questions over Moscow's commitment to freeze output ahead of a producers' meeting in Doha later in April.

On the other hand, Russia’s GDP dynamics (seasonally adjusted) was flat in February 2016, as compared to 0.1% contraction in January, according to the monthly monitoring published by the Economic Development Ministry Tuesday.

Apart from this, the Bank of Russia’s unexpectedly hawkish turn at its last rate meeting and the slump in oil prices are casting a shadow on the Russia long-term debt. Morgan Stanley in its report said that if oil prices continue to weaken, the rate on 10-year notes will climb by 50 basis points.

Lastly, we foresee that the strong U.S. economy can bring further headwinds for Russian assets in the near future.