Nervous Russia Traders Sell, Then Buy on Mixed Sanctions Signals

(Bloomberg) -- Russian bonds flipped from losses to gains as the Finance Ministry restarted debt auctions and traders scrambled to keep up with conflicting reports on the prospects for fresh U.S. sanctions.

Ten-year ruble bonds erased declines after a state news service reported new U.S. penalties aren’t on the way, eclipsing hawkish comments by a White House adviser. Within an hour of the Moscow open, the ruble went from worst performer in emerging markets to the best before trading little changed. The benchmark stock index climbed 2.2 percent, one of the strongest performers globally.

“Conflicting headlines create nervousness on the market,” said Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow. “Investors aren’t trading Russia based on the fundamentals, they’re trading it based on the news headlines.”

Investors are trying to gauge whether more White House penalties are in the pipeline after the toughest U.S. sanctions to date roiled markets last week and forced the Finance Ministry to cancel a debt auction for the first time since 2015. The ruble changed direction on Wednesday after RIA Novosti reported the Russian embassy in the U.S. was notified that no further sanctions are coming. Earlier, economic adviser Larry Kudlow had said the Trump administration is considering more penalties.

Another Chance

The government sold all 10 billion rubles ($163 million) of December 2021 notes offered and received bids for three times that amount. It placed 3.2 billion rubles of November 2022 floating-coupon debt out of 10 billion rubles tendered in a later auction.

“Clearly it would be preferable if the U.S. would make up their minds sooner rather than later, or at least provide some clarity about their sanctions philosophy, but we have to live with the day to day vagueness,” said Richard Segal, senior analyst at Manulife Asset Management in London.

President Vladimir Putin wants to give Donald Trump another chance to make good on pledges to improve ties and avoid escalation, according to four people familiar with the matter. One said the Kremlin has ordered officials to curb their anti-U.S. rhetoric.

“It is confusing,” said Pavel Laberko, a London-based equity money manager at Union Bancaire Privee. “The logic behind some of the recent sanctions is not clear, and I am not sure we can rely on a letter sent to the embassy. I would stay on the side of caution for now.”

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