Russia Cuts Five-Year Government Bond Auction Offering by 80%

Russia reduced an offering of five-year government notes at auction tomorrow. The ruble was little changed against the central bank’s basket of currencies.

The Finance Ministry cut a sale of notes due January 2018 to 4.21 billion rubles ($137 million) from the planned 20 billion rubles, it said in a statement, without giving a reason. An auction of 8.42 billion rubles of debt due 2022 will go ahead as planned. The ruble has fallen for three weeks against Bank Rossii’s basket of dollars and euros, and traded at 34.8649 by 7 p.m. in Moscow.

“Clearly, it’s all due to weak market conditions,” Alexandr Ermak, head of fixed income research at Region Broker Co., said by phone. “There’s no special demand for OFZs now that the ruble is falling.”

Urals crude, Russia’s main export earner, has dropped 8.5 percent since this year’s high on Feb. 8 and traded little changed today at $106.82 per barrel. Oil and gas sales provide about 50 percent of Russia’s budget revenue.

The Finance Ministry is offering the five-year bonds at tomorrow’s auction at a yield of 6.21 percent to 6.26 percent. It traded unchanged at 6.27 percent today. The 10-year bonds are being offered at 6.82 percent to 6.87 percent, while the rate dropped seven basis points, or 0.07 percentage point, today to 6.88 percent.

“I think the 10-year results will be bad, the five-year may be better, in both cases at the top of the range,” Denis Poryvay, an analyst at ZAO Raiffeisenbank in Moscow, said by phone today. “In general, there are no expectations that the ruble will substantially strengthen, and thus there is no reason to buy OFZs.”

The ruble added 0.2 percent today against the dollar to 30.6600 and gained 0.1 percent versus the euro to 40.0030.

Interest Rates

Bank Rossii directors will meet on March 15 to discuss interest rates. The central bank kept its main rates unchanged last month after inflation reached 7.1 percent in January, while price growth accelerated in February to 7.3 percent, according to the state statistics service.

“This acceleration means that in the next month or two the central bank is unlikely to ease monetary policy,” Ermak said.

Non-residents are focused on who will succeed Sergey Ignatiev as central bank chairman when his term ends in June, Dmitry Polevoy and Egor Fedorov, analysts at ING Groep NV in Moscow, said in a note to clients. Speculation that the choice may be President Vladimir Putin’s aide and former economy minister Elvira Nabiullina has stoked the intrigue, according to the analysts.

Nabiullina is being considered by Putin to replace Ignatiev, two people with knowledge of the matter said yesterday.

“Her name is associated exclusively with more aggressive monetary easing compared with what might be expected if the successor were to come from the current central bank’s ranks,” Polevoy and Fedorov said.