Russian government debt auction fails for third consecutive week

For three weeks running, the Russian Finance Ministry has been failing in its attempts to borrow money on the market, reports.

At the Federal Loan Bond (OFZ) auctions on Wednesday, the department was once again unable to sell the targeted amount. Out of a stated 20 billion rubles, the finance ministry was only able to raise 11.1 billion, despite the fact that buyers were offered notable discounts compared to market prices.

Both auctions can be considered “failures”, commented Loko-Invest analysis director Kirill Tremasov.

The Finance Ministry offered 10 billion rubles of 10-year OFZ 26224s, but there was only demand for 9 billion. In the end, investors acquired only 6.5 billion rubles’ worth of the bonds with a yield 2 basis points above market.

In the second placement, 10 billion rubles of 5-year OFZs were offered. Although the demand (12.7 billion) exceeded the offer, the banks and investors were only prepared to buy the bonds at significantly higher rates. The Finance Ministry ended up placing 4.7 billion rubles of bonds at a yield 5 basis points above market.

Investors are once again afraid of sanctions, observes Mike Workman, portfolio manager at DG19 Management in Moscow. The day before the placement, the US State Department announced that it had started consultations on a second round of sanctions for Russia’s use of chemical weapons.

The results of Congress elections only added fuel to the fire. “The democrats really wanted to add anti-Russian sanctions, but the House of Representatives, controlled by the republicans, restrained this attitude,” explains Elina Rybakova, researcher at the European think tank Bruegel, “The transfer of the House of Representatives to the democrats’ control will enable them to push sanction initiatives more forcefully”.

Since the start of April, non-residents, who for two years had been the primary lenders to the Russian government, withdrew 520 billion rubles from OFZs.

“Investors’ behavior is more likely to be pre-emptive than justified on an objective appraisal of the American authorities’ actions,” commented Russian Deputy Finance Minister Sergei Storchak on Wednesday. Nevertheless, “the Finance Ministry has no decadent inclinations and none are foreseen either,” he assured.

By the end of the third quarter, the Finance Ministry’s borrowing program had failed, raising only 200 billion rubles instead of the stated 450 billion. The results were even worse the previous quarter – only 197 billion.

The ministry reduced its plan for the third quarter by one third, from 450 to 310 billion rubles. It was completed by the end of October with a two-time delay.

  Russia, Russian Government, ruble, USA