Russian Bonds Gain Most in 2 Weeks as Auction Demand Tops Supply

  • Finance Ministry sells 23 billion rubles of debt Wednesday
  • Russian bonds 3rd-biggest gainers in emerging markets in March

Russian bonds had their biggest gain in almost two weeks as demand exceeded the amount offered at a debt auction, helping cap the best quarterly result for sales in five years. The ruble was little changed.

Local-currency bonds rose, pushing yields on five-year debt down the most in nine days. Investors bid for more than four times the amount of August 2021 bonds on offer as the Finance Minister raised 22.8 billion rubles ($337 million) in fixed- and floating-rate notes as well as inflation-linked securities. The ruble was little changed at 68.12 per dollar as of 8:14 p.m. in Moscow.

With the sales, the government has met more than 99 percent of its 250 billion-ruble target for the quarter, the highest ratio since the start of 2011. Russia stepped up debt offering this year to fill a hole in its budget left by declining energy prices and U.S. and European sanctions in response to its role in the conflict in Ukraine. Falling borrowing costs have coincided with demand from investors seeking high-yielding securities in an global environment of record-low interest rates.

"They might have not sold them out, but in almost every case the auctions were about three times oversubscribed," Olga Sterina, a fixed-income analyst at UralSib Capital in Moscow, said by e-mail.

Yellen Effect

The ruble was little changed after gaining on Tuesday, when Federal Reserve Chair Janet Yellen expressed caution over raising U.S. interest rates. Higher returns on dollar assets typically lure money away from emerging markets. The currency has rallied 10 percent in March, beating all but one of its 23 main peers in the developing world.

Investors bid for 47 billion rubles of the 11.5 billion rubles of August 2021 bonds offered by the Finance Ministry. It sold out an auction of 9.33 billion rubles of floating-coupon December 2017 securities, which saw demand of 25 billion rubles, and placed 2.01 billion rubles of inflation-linked notes. The ministry will aim to sell 270 billion rubles in the coming quarter, it said today.

“Given the results of the first quarter, the size looks doable," Sterina said. "By the middle of the year we should see a liquidity surplus, so there should be no problem with the demand."

The yield on five-year government debt, known as OFZs, fell 10 basis points to 9.23 percent today, the biggest decline since March 17. A rebounding oil price also helped Russian assets, sending the Micex Index of equities up 1.3 percent, ending its longest losing streak since 2011. Gazprom PJSC led gains, rising 2.6 percent.

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