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Russia Bond Slump Drives Yield to Record; Ruble Slides to Basket

Yields on Russia’s 15-year ruble bonds rose to a record after the government failed to sell the full offered amount of long-term securities yesterday.

Yields on government ruble bonds due January 2028 rose four basis points to 7.36 percent, the highest since the notes were first sold in January and a six basis-point increase in the week. The ruble lost 0.2 percent against the central bank’s target dollar-euro basket to 34.9346 by 7p.m. in Moscow, heading for a third weekly decline. The currency strengthened 0.2 percent versus the dollar to 30.6550 and weakened 0.5 percent against euro to 40.1645.

The Finance Ministry sold 15.3 billion rubles ($498 million) of 10-year bonds out of 25 billion rubles offered at an auction yesterday. The notes were placed at a yield of 6.95 percent, the top end of guidance and a three basis-point premium to the market.

The decision to offer investors an extra return may increase pressure on the long end of the government’s yield curve as higher market premiums become more likely, VTB Capital analysts Maxim Korovin and Anton Nikitin wrote in a note to clients today.

There was a high share of “speculative interest” in the auction, ING Groep NV analyst Dmitry Polevoy wrote in a note today.

Crude oil futures were little changed in London, trading at $111.10 per barrel.

Long Dollar

The ruble has retreated 0.5 percent this year as concern Europe’s debt crisis will worsen pared appetite for the currency of the world’s biggest energy exporter. Brazil’s real is up 4.6 percent, while India’s rupee and China’s yuan have appreciated 0.8 percent and 0.2 percent respectively.

“We are more likely to see the market going long dollar, and only the exporters selling can support the ruble in the current conditions,” Polevoy said.

The new local tax period, when exporters sell foreign currency revenue to accumulate rubles, starts March 15. Payments to the budget may total 950 billion rubles in March, according to HSBC Holdings Plc calculations.

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