Russia Axes 1st Bond Sale in 3 Months as Ukraine Drives Up Yield

Russia canceled its first ruble bond auction in three months after borrowing costs surged to the highest level in more than two months yesterday as the U.S. and EU weighed sanctions.

The Finance Ministry said it pulled tomorrow’s sale, citing “unfavorable market conditions” in a statement on its website today. The yield on Russia’s ruble debt due February 2027 fell nine basis points to 9.14 percent as of 2:31 p.m. in Moscow after jumping 19 basis points yesterday.

Local borrowing costs are set to rise the most in more than a year this month. Already sanctioned for his decision to annex Crimea in March, President Vladimir Putin faces the prospect of further penalties after the U.S. indicated that it believes the Russian military supplied the missile that downed a Malaysian passenger jet last week. Putin counters that his opponents are using the incident for “selfish political gains.”

The government won’t sell bonds when prices are too high, Finance Minister Anton Siluanov said April 1. Before today’s decision, government had canceled eight auctions since the start of the year and voided another four more after bidders sought higher yields than the ministry was prepared to offer.

The government has raised 124 billion rubles ($3.5 billion) from selling OFZ bonds since the beginning of the year and has placed 100 billion rubles in untraded GSO bonds with the Pension Fund. Next year the government plans to increase the gross borrowings on the local market to about 1 trillion rubles, Konstantin Vyshkovsky, head of the Finance Ministry’s debt department, said earlier this month.

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