Russian Dollar Bonds Yield Under 5% for First Time (Update2)
March 10, 2010, 11:28 AM EST(Adds Brazil, Russia ratings in last paragraph.)
By Denis Maternovsky
March 10 (Bloomberg) -- Yields on Russian dollar bonds fell to less than 5 percent for the first time as rising oil prices boosted investor confidence in the world’s biggest energy exporter ahead of its first foreign-currency bond sale in 12 years.
The yield on Russia’s benchmark 7.5 percent dollar bond due in 2030 fell 4 basis points to 4.976 percent, a record low, Bloomberg prices show. The yield is 81 basis points below 2030 dollar bonds sold by Brazil, the biggest discount since July 2008. Oil, Russia’s main export earner, has more than doubled since February 2009 to $81.96.
Russia plans to borrow as much as $17.8 billion abroad this year to help plug a forecast 6.8 percent budget shortfall in its first sale of international bonds since it defaulted on $40 billion of domestic debt and devalued the ruble in 1998. Low interest rates in the U.S. are likely to be needed “for some time” as high unemployment lingers and inflation stays below target, Federal Reserve Bank of Chicago President Charles Evans said yesterday.
“It’s a good time for Russian issuers to borrow and there is room for yields to go even lower,” said Mikhail Galkin, a fixed-income analyst at VTB Capital in Moscow. “Low rates in the U.S. and strong risk appetite are behind the record low yields on Russian debt.”
Today’s yield compares with a six-year high of 12.5 percent in October 2008, a month after the collapse of Lehman Brothers Holdings Inc. Russia’s economy may grow 4.5 percent this year after a record 7.9 percent contraction in 2009, central bank First Deputy Chairman Alexei Ulyukayev said in an interview in Izvestia on March 3.
‘Seize the Moment’
The price of five-year credit-default swaps, contracts that pay off if Russia reneges on its sovereign debt, is at an 18- month low of 141 basis points, falling from 727 basis points a year ago. That compares with an all-time low of 37 basis points investors demanded to protect against Russian default in June 2007. Default swaps fall as the perception of credit quality improves.
Brazil’s 12.25 percent dollar bond due in 2030 is yielding 5.784 percent today, or 81 basis points more than Russia’s dollar debt. Brazilian debt was yielding 250 basis points less than Russian debt a year ago, Bloomberg data show.
The country may “seize the moment” and sell new Eurobonds in the first half of 2010, Deputy Finance Minister Dmitry Pankin said Feb. 17. The second half may prove less advantageous if U.S. and European regulators start raising interest rates, he said.
The government may sell bonds after April in a sale that could help set a “benchmark Russian borrowers can reference,” according to Pankin. Russia hired Barclays Capital, Citigroup Inc., Credit Suisse Group AG and VTB Capital as co-organizers of the initial installment.
Russian debt is rated BBB by Standard & Poor’s, two levels above non-investment grade and one notch higher than Brazil’s BBB-.
--Editor: Alex Nicholson, Stephen Kirkland.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
