Russia scrapped auctions for 20 billion rubles ($560 million) of government notes as investors demanded higher yields after a truce to ease tension in Ukraine faltered.
The Finance Ministry, which has failed to sell bonds in seven of the last eight weekly auctions, canceled the sale of five-year and nine-year ruble-denominated securities today because there were no bids at acceptable prices, according to a statement on its website. The Micex Index of equities declined for a third day and Russia’s benchmark bonds dropped.
The pro-U.S. government in Kiev is considering a new push to dislodge militants in the Russian-speaking east of the country, while Russia’s Foreign Minister Sergei Lavrov said Moscow would respond if it’s interests were attacked in Ukraine, undermining an April 17 accord to reduce tension in the region. Yields on benchmark 2027 ruble bonds have risen 81 basis points since President Vladimir Putin’s incursion into Crimea started on March 1.
“They decided to test the market and the market wasn’t responsive,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “A rather expected development given the geo-political turmoil.”
Russia’s main equities gauge slid 0.5 percent to 1,329.11 by the close in Moscow. The yield on ruble-denominated debt due February 2027 increased seven basis points to 9.17 percent, while the ruble weakened 0.2 percent to 41.8787 against the central bank’s target basket of dollars and euros.
The U.S. and its European allies have threatened to ratchet up sanctions on Russia if it doesn’t act to defuse the confrontation in eastern Ukraine. In a call yesterday with Lavrov, U.S. Secretary of State John Kerry voiced concern “over the lack of positive Russian steps to de-escalate” the crisis, according to a State Department release.
“Investors are dedicating all of their attention to Ukraine,” Yuri Selyandin, a fund manager who helps oversee about $2 billion at GHP Group in Moscow, said by phone. “We’re not seeing any positive development.
The situation on the markets may not stabilize before Ukraine holds presidential elections on May 25, with the U.S. reiterating that it may introduce new sanctions against Russia, Selyandin said.
The spike in borrowing costs has deterred Russia from selling bonds as the weaker ruble and higher oil prices boost public revenue, offsetting the need to sell debt.
Ukraine’s government is doing its part to uphold the Geneva accord and ‘‘Russia needs to comply with the commitments it made” or face more sanctions, White House spokesman Jay Carney told reporters traveling with U.S. President Barack Obama yesterday. A decision to impose additional penalties may be made in the “coming days,” he said.
OAO Magnit, the nation’s biggest food retailer, fell 2.1 percent to 7,520 rubles. OAO Gazprom, the nation’s biggest natural gas producer, declined 0.9 percent to 130.50 rubles.
Magnit yesterday posted a 9.1 percent margin on earnings before interest, taxes, depreciation and amortization in the first quarter. That’s a decline from 9.3 percent in the same quarter last year.
Equities on the Micex trade at 4.8 times estimated earnings, the cheapest valuations among 21 developing countries monitored by Bloomberg.
Russian companies are set to pay as much as 485 billion rubles in taxes this week, including as much as 240 billion rubles in mineral extraction levies, potentially boosting demand for the local currency.
The ruble is the second-worst performer this year among 24 developing-country currencies monitored by Bloomberg, having declined 7.9 percent against the dollar. It was little changed versus the greenback at 35.7225 and 0.3 percent weaker against the euro at 49.4045.