Russia failed to raise as much money as planned at a government bond auction, joining nations from India to Taiwan in missing borrowing targets as investors keep away from emerging-market assets.
The Finance Ministry in Moscow sold 6.07 billion rubles ($182 million) of its so-called OFZ notes due May 2016 after offering 13.6 billion rubles, according to a statement on its website. Russia canceled an auction last week as only one bidder took part. The ministry issued today’s bonds at a 6.5 percent average yield, the top of its proposed range.
Developing nations are scaling back as the prospect of the U.S. paring financial stimulus measures and tensions over Syria curb investor appetite for riskier assets. India’s central bank said it cut the size of a debt auction this week to 100 billion rupees ($1.5 billion) from 150 billion rupees. Indonesia scaled back an Islamic debt offering for the first time since July, while Taiwan’s note sale yesterday fell short of the government’s goal for the first time since 2011.
“It does suggest banks and other investors either would rather sit on the sidelines until international developments become clearer or they are waiting for yields to reach a new base,” Richard Segal, the head of international credit strategy at Jefferies Group Inc. in London, said in e-mailed comments.
Investors demand yields 3.4 percentage points over U.S. Treasuries to buy emerging-market dollar bonds, compared with a spread of 2.1 percentage points at the start of this year, according to Bloomberg USD Emerging Market Sovereign Bond Index.
The yield on Russia’s benchmark ruble bonds due 2027 fell one basis point to 7.99 percent as of 5:54 p.m. in Moscow, up from this year’s low of 6.8 percent on May 6. The ruble kept its advance after the auction, trading 0.3 percent stronger at 33.41 per dollar. The currency has weakened 7.4 percent against the dollar since the end of April.
The “ruble remains under pressure” and “until this situation reverses, we do not see any reason to expect a decisive return of demand to the local bond market,” Dmitry Dudkin, head of fixed-income research at UralSib Financial Corp. in Moscow, said by e-mail. While higher yields should attract local investors, they are also “reluctant to buy when the currency is under pressure.”
While Russia may run a budget shortfall of as much as 400 billion rubles this year, crude averaging above $105 a barrel in the second half could “erase this deficit,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America in Moscow, said last week. Russia’s local-currency bonds lost 0.4 percent last month, compared with declines of 2.9 percent for Brazil and 1.2 percent for India and China, according to JPMorgan Chase & Co. indexes.
Oil, the country’s chief export earner, snapped two days of gains, falling 1.1 percent to $114.45 per barrel in London.
“The relatively weak demand at the OFZ auction today is more to do with external sentiment than Russia-specific factors,” Esther Law, who helps oversee 4.2 billion euros ($5.5 billion) of emerging-market and high-yield debt as a fund manager at Pioneer Investments, said by e-mail. Russia’s “comparatively low fiscal balance and current-account surplus should argue for further outperformance,” Law said.