Russia Scraps Bond Auction as Investors Demand Higher Yields

Russia scrapped an auction of bonds for the first time since May after investors demanded higher yields than the government offered.

The Finance Ministry had planned to sell 30 billion rubles ($956 million) of notes due in February 2019 at a yield of 7.12 percent to 7.17 percent. The yield on Russia’s seven-year OFZ notes jumped four basis points to 7.27 percent by 2:01 p.m. in Moscow, the highest in a week, after a six basis-point increase yesterday, according to data compiled by Bloomberg.

Bond yields climbed and the ruble weakened after Urals crude dropped 1.7 percent yesterday, its sixth day of declines. Russia, the world’s largest energy exporter, relies on oil and gas for 50 percent of its budget revenue. The OFZ’s yield has tumbled 140 basis points since June to a record-low 7.17 percent on Oct. 22.

“The rally in OFZs is over,” Egor Fedorov, a credit analyst at ING Groep NV in Moscow, said by telephone after the government’s statement today. “Yields started rising very tangibly yesterday as a reaction to negative global factors. Local investors want to take profit, as foreign ones will be more cautious.”

Russia scrapped all its auctions in May as Urals dropped 15 percent, its biggest monthly decline for two years. Today’s auction was shelved because the bids “exceeded the highest end of yield guidance,” the Finance Ministry said in a website statement.

Emerging-market stocks declined today as concern Europe’s economic crisis is deepening pared investor appetite for riskier assets. German business confidence unexpectedly fell to the lowest in more than 2 1/2 years and a report showed euro-area services and manufacturing contracted more than economists estimated. Europe is Russia’s biggest trading partner.

“You can get better yields on the secondary market,” Fedorov said.

To contact the reporter on this story: Mark Sweetman in Moscow at msweetman@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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