Russia Scraps Ruble Bond Sale as Yields Jump to 5-Month High

Russia canceled its third ruble bond auction in a row as U.S. and European Union sanctions drive the nation’s borrowing costs to the highest levels since March.

The Finance Ministry pulled tomorrow’s sale, citing “unfavorable market conditions” in a statement on its website. The yield on Russia’s 10-year bonds rose six basis points to 9.72 percent, the highest since March 14. The rate on the notes has increased 109 basis points since a day before a Malaysian passenger jet crashed in Ukraine on July 17.

The U.S. and EU last week expanded sanctions against Russia for what they see as President Vladimir Putin’s destabilizing role in Ukraine. Switzerland added new people and companies to its list of sanctions today. Russia has now axed 11 auctions since the start of the year and voided four more after bidders sought higher yields than the ministry was prepared to offer.

“A much-expected cancellation -- the yields are back to this year’s peaks, and they canceled the majority of auctions in March and April, too,” Yulia Safarbakova, an analyst at BCS Financial Group in Moscow, said in e-mailed comments.

The government won’t sell bonds when borrowing costs are too high, Finance Minister Anton Siluanov said April 1. Russia has raised 124 billion rubles ($3.5 billion) from selling so-called OFZ bonds this year and has placed 100 billion rubles in untraded GSO bonds with the Pension Fund. It initially planned to raise 808 billion rubles in 2014.

Next year, the ministry plans to increase gross borrowings on the local market to about 1 trillion rubles, Konstantin Vyshkovsky, head of the debt department, said last month.

“For the Finance Ministry to return to the market, the yield on the bonds with five-to-nine years’ duration should go below 9 percent,” Olga Sterina, an analyst at UralSib Capital, said by e-mail. “They aren’t ready to borrow at more than 9 percent.”

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