Russia's Finance Ministry plans to sell as much as 335 billion rubles of so-called OFZ bonds in the fourth quarter, the biggest three-month offering for at least a year. The government is selling 130 billion rubles this month, starting with 25 billion rubles of 15-year notes tomorrow.

Ruble Appreciation

The ruble gained 3.6 percent versus the dollar in September. It slid 0.2 percent to 31.1121 per dollar by 5:07 p.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 31.6010 per dollar in three months.

Russia is rated Baa1 by Moody's Investors Service, the third-lowest investment-grade ranking. Russian sovereign dollar bonds due in April 2020 rose, lowering the yield by six basis points, or 0.06 percentage point, to 2.685 percent. The yield on domestically traded notes due in June 2017 lost three basis points to 7.49 percent. The yield on Russia's international ruble bond due in March 2018 declined two basis points to 6.225 percent.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell two basis points to 142, according to data compiled by Bloomberg. The swaps cost 13 basis points less than contracts for Turkey, which is rated three levels lower at Ba1 by Moody's. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Yield Gap

The extra yield investors demand to hold Russian debt rather than U.S. Treasuries dropped five basis points to 202, according to JPMorgan EMBI Global indexes. The difference compares with 165 for debt of similarly-rated Mexico and 153 for Brazil, which is rated one step lower at Baa2 by Moody's.

The yield on ruble government debt has fallen 67 basis points from this year's peak on June 4 to 7.25 percent as of Sept. 28, compared with a decline of 63 basis points for emerging markets to 5.80 percent, according to JPMorgan indexes.

Market liberalization could spur an increase in foreign ownership of OFZ bonds to 20 percent from the current 6 percent, according to Elena Kolchina, head of Renaissance Capital's fixed income group. Opening up the market could reduce yields by about 100 basis points over the next six months, she said in e-mailed comments.

"This trend could be sustained and not a short-term rally," Kolchina said. "It could last for years."