Russia Sells Out Bond Auction as Yield Premium Eclipses Oil Drop

  • OFZ notes placed at 18 basis-point premium to existing debt
  • Sliding crude prices drag ruble toward third day of losses

Russia sold all of the 10-year bonds tendered at an auction on Wednesday as the extra yield offered by the Finance Ministry outweighed a drop in oil prices and the ruble.

The ministry sold all 20 billion rubles ($309 million) of the new notes due in September 2026 after attracting more than double that amount in bids. The bonds were placed at an average weighted yield of 8.57 percent, an 18 basis-point premium to the level for 10-year debt on Tuesday. The sale came as the ruble weakened for a third day amid a 5.2 percent retreat for crude, Russia’s main export earner.

Russia offered the most debt in auctions today since May after oil’s slump to a 12-year low in January forced the government to contend with the widest budget deficit since 2010. While the rebound in oil prices in the first half of the year has boosted appetite for the nation’s debt and pushed down yields, the uptick in borrowing costs this week prompted analysts to predict that the ministry would need to give investors a sweetener.

“The ministry offered a generous premium,” Yakov Yakovlev, a fixed-income analyst at Aton Capital in Moscow, said by e-mail after the auction. The biggest weekly drop in yields since March last week may have encouraged the government to offer a larger amount of bonds today, he said.

The ruble weakened 0.4 percent to 64.57 per dollar by 6:30 p.m. in Moscow. Yields on generic 10-year debt rose one basis point to 8.4 percent, 16 basis points above a more than two-year low reached on Friday. The state in its second auction sold 4.51 billion rubles of its January 2025 floaters, less than half of the 10 billion rubles on offer. Demand at the auction was 6.5 billion rubles.

Brent oil fell 0.6 percent to $47.68 per barrel after plunging 4.3 percent on Tuesday. The Micex Index of stocks fell 0.8 percent, compared with a 1.5 percent drop for MSCI Inc.’s emerging-markets stocks gauge.

“It’s a weak market with oil and the ruble falling,” said Alexey Demkin, an analyst at Gazprombank in Moscow, “Nonetheless, they managed to sell the whole lot.”

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