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By Bloomberg

In a global market cowered by the threat of interest-rate increases, one country stands out as risk-free on that score at least: Russia.

It’s not just that Russia is likely to keep on reversing last year’s emergency rate increase; it’s also less prone to the fallout when the Federal Reserve starts raising or the European Central Bank pares its bond buying, according to Credit Suisse Group AG. It told clients to buy government ruble bonds after the biggest weekly yield jump since February.

Investors are seeking shelter from a global rout that sent Germany’s bunds to their worst week in more than 16 years on signs of inflation returning to Europe and a jump in U.S. employment. While Russia has plenty risk of its own -- a violent flare-up in Ukraine raised the specter of deepening sanctions last week -- analysts expect central bank Governor Elvira Nabiullina to stimulate the economy and bonds by cutting the benchmark one-week auction rate on June 15.

“There is no reason that rising bond yields in Germany and the U.S. should have any lasting impact on Russian bond yields,” Jan Dehn, the head of research at Ashmore Group Plc in London, which holds more of the country’s securities than the weighting in benchmark indexes, said in e-mailed comments. “Russian bond yields should ultimately be a function of growth, inflation and monetary policy in Russia.”

Worst Performer

The yield of five-year government bonds, so called OFZs, rose 46 basis points in the first week of June, the most since the period ending Feb. 27. The central bank’s return to purchases of foreign currency to replenish reserves helped turn this year’s best-performing currency into the worst in the past month, sending the ruble on Friday to the weakest against the dollar in two months.

“We recommend investors take advantage of the past weeks’ selloff to go long OFZ bonds ahead of the central bank’s meeting,” Credit Suisse analysts including Nimrod Mevorach said in a report on June 5. While the “main risk to this bullish view is if the current round of conflict in Ukraine escalates significantly,” bonds will react “favorably” as they did around previous rate cuts, Mevorach said.

Credit Suisse predicts the Bank of Russia will lower its main rate by 100 basis points to 11.5 percent, in line with most of the 21 estimates in a Bloomberg survey of economists. That would be the fourth cut this year and bring total reductions to 550 basis points, close to reversing the emergency increase of 650 basis points in December to stave off a plunge in the ruble.

U.S. Rates

The yield on five-year bonds climbed 15 basis points to a five-week high of 11.38 percent on Friday and the currency ended the day 0.4 percent stronger at 56.2450 per dollar after weakening to 57.2190. Emerging-market currencies capped a third weekly decline after a report showed U.S. payrolls climbed more than forecast, bolstering the case for the Fed to raise rates and damping demand for riskier assets.

The five-year bond yield dropped eight basis points to 11.30 percent by 12:15 p.m. in Moscow, and the ruble was little changed.

While local pension funds have supported ruble assets, the threat of a retreat by global investors makes them unattractive, according to Yury Tulinov, head of research at PAO Rosbank, the Russian unit of Societe General SA.

“It’s yet to be seen if these drivers will suffice should an exodus of bearish investors happen,” Tulinov said in e- mailed comments on Friday. “We don’t like either the ruble, or ruble bonds.”

Foreign Holdings

Foreigners held about 18 percent of OFZs in February, according to the latest data available from the Bank of Russia. That compares with a peak of 28 percent in May 2013, the data show.

Russia’s current-account surplus helps shield the country from shifts in sentiment and its bonds are among the least sensitive to rising rates in developed markets, according to Mevorach, Credit Suisse’s debt strategist for emerging Europe, the Middle East and Africa in London.

Russia had a current-account surplus of $23.5 billion in the first quarter this year. That compares with deficits for countries including Brazil, South Africa and Turkey, making them more dependent on capital inflows to fund the gap.

“I would not go as far as calling Russian assets a ‘safe haven,’” Mevorach said in an e-mail on Friday. Its “fixed- income assets would likely sell off less than other core emerging markets” in case of broad outflows, he said.