LONDON, April 21 (Reuters) - Russian 10-year bond yields fell to three-year lows on Friday on expectations of a rate cut, although the rouble along with most other emerging assets was flat to weaker as the dollar and U.S. yields held off recent lows.
The first round of French presidential elections this weekend has fuelled market jitters, even though far-right, anti-euro candidate Marine Le Pen is seen as unlikely to win the second and final round in May.
A rally in emerging markets has also been checked by tensions around Syria and North Korea, as well as worries over the policies of U.S. President Donald Trump, who has launched a probe against China and other steel exporters.
MSCI’s emerging equity index rose 0.3 percent, but data from JPMorgan showed slowing inflows into emerging market funds, with equity and bond funds receiving $650 million and $1.3 billion respectively in the past week.
Chinese mainland shares posted their worst week of 2017 on fears of greater regulator scrutiny. Asian steelmakers’ shares, however, shrugged off Trump’s trade threats.
Most emerging currencies were flat to weaker against the dollar, but looked poised to end the week stronger.
South Africa’s rand was set for its second week of gains after sharp falls in the two preceding weeks following a credit rating downgrade to junk. South African local yields touched a three-week low after data showed slowing inflation .
Turkey’s lira firmed more than two percent this week after President Tayyip Erdogan won last weekend’s referendum on awarding him greater powers.
The Russian rouble only strengthened a slither over the week but is likely to gain support from bond market flows.
Ten-year bond yields tumbled to 7.79 percent, the lowest since January 2014 and down 15 basis points this week, after central bank chief Elvira Nabiullina said a 25-50 bps rate cut was possible next week. One-and two-year yields too fell, touching 12-week lows, according to Reuters data.
Falling interest rates have enticed foreign players too - Wednesday’s auction saw bids of 74 billion roubles for 20 billion roubles in 15-year bonds
Maxim Korovin an analyst at VTB Capital said that after easily absorbing Wednesday’s auction volumes, investors had turned to secondary markets, with many trying to re-invest the 150 billion worth of rouble debt that matured this week.
“Initially OFZs were led by the local interest, but in the afternoon fast international money joined the rally, pushing (price) quotes even further north,” Korovin told clients.
Per Hammarlund, chief emerging markets analyst at SEB in Stockholm, noted the rouble’s strength despite oil’s large weekly price drop and said end-month tax payment would continue to support it. The currency is up 4 percent this month.
“Part of the reason why yields have come down is the central bank, but also people bringing in money early to pay taxes, and they have to put it somewhere,” he said.
Central European currencies saw some pressure from French election jitters, with the Polish zloty near one-month lows and the Czech crown standing just off the 27-per-euro floor that was scrapped earlier this month.
“We are seeing a bit of a soft period in central and eastern Europe, even the Czech crown touched the previous floor. Many, including me, believed it would drop down to the low 26s maybe high 25s (against the euro) - it is partly related to the French elections,” Hammarlund said.
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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 962.33 +3.88 +0.40 +11.60
Czech Rep 979.20 +4.01 +0.41 +6.25
Poland 2293.16 +7.34 +0.32 +17.72
Hungary 33012.74 +57.72 +0.18 +3.15
Romania 8220.91 +11.25 +0.14 +16.03
Greece 675.60 +1.20 +0.18 +4.97
Russia 1086.41 +3.06 +0.28 -5.72
South Africa 45726.24 -9.33 -0.02 +4.16
Turkey 92726.99 +687.61 +0.75 +18.67
China 3173.15 +1.05 +0.03 +2.24
India 29333.66 -88.73 -0.30 +10.17
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.96 26.88 -0.28 +0.19
Poland 4.27 4.26 -0.12 +3.14
Hungary 313.17 313.26 +0.03 -1.39
Romania 4.54 4.54 -0.06 -0.15
Serbia 123.42 123.48 +0.05 -0.06
Russia 56.29 56.16 -0.24 +8.83
Kazakhstan 312.49 312.71 +0.07 +6.77
Ukraine 26.72 26.73 +0.04 +1.05
South Africa 13.14 13.14 -0.03 +4.47
Kenya 103.15 103.30 +0.15 -0.76
Israel 3.68 3.67 -0.25 +4.69
Turkey 3.64 3.64 -0.11 -3.23
China 6.88 6.88 -0.01 +0.90
India 64.61 64.61 +0.01 +5.17
Brazil 3.15 3.15 +0.03 +3.36
Mexico 18.83 18.78 -0.26 +10.00
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 333 0 .02 7 76.96 1
All data taken from Reuters at 08:19 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Additional reporting by Karin Strohecker; editing by Alexander Smith)