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. Last Updated: 07/27/2016

Stocks Rise, Bonds Fall As Markets Eye Elections

Russia's stock and bond markets rallied and sunk respectively this week, reflecting the hopes and worries of financial markets about President Boris Yeltsin's political future, traders said Friday.


The Moscow Times Index closed the week up 5 percent in ruble prices and 4 percent in dollar terms, at 148.12 and 66.42, respectively. The index of 50 leading shares peaked Wednesday at 152.97 before losing ground.


Overall, 23 stocks on the index of 50 leading shares posted gains, with 14 declining and 13 issues unchanged.


The rise was led by energy stocks, one trader said, in particular shares of Mosenergo and LUKoil, which traded as high as $0.35 and $6.25 respectively.


Other big gainers were Permneft, up 20.5 percent to close at $18, and Bratsk Timber Complex, up 10.8 percent to $36.


The week's biggest losers were Nizhny Tagil Metal, which lost 33.33 percent to close at $0.028, and Condpetroleum, which lost 11.1 percent to close at $2. Increased optimism about Yeltsin's re-election chances helped fuel the rally, one trader said.


"The political situation is looking a bit more stable," said the trader, who asked not to be named. "It looks like Yeltsin might not take a beating at the elections."


On the government bond market, however, nervous investors drove yields for six-month GKOs at Wednesday's auction to 165.96 percent from 111.98 percent the week before. One trader said the spike was due to the Russian government's need to raise cash and traders' worries that it wouldn't pay the loans back.


"The government has been borrowing huge sums to finance Yeltsin's election promises, and the market has been having a hard time digesting the bonds," said Donald Knapp, fund manager at First Capital.


The Finance Ministry sold only 3.7 trillion rubles ($753.3 million) of a planned 6-trillion ruble issue of six-month bills, and was forced to pay out more in redeeming issues than it received from new sales.


Still, the jump in bond yields does not yet signal an impending financial crisis, another trader said.


"I don't think we are facing a collapse, but there are serious confidence problems," said Richard Deitz, head of fixed income at Renaissance Capital. "The real problems are related to market perceptions of the outcome of the elections."Some traders seem to be wondering whether paper being issued now will be honored by a post-Yeltsin government," Deitz said, adding that yields on bonds maturing after the elections are significantly higher than those maturing before.


The ruble closed at 4,919 against the dollar Friday, down 15 points over the week.