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Russia Braces for Debt Blowback If U.S. Stiffens Its Sanctions

Pedestrians enter the Okhotny Ryad metro station in central Moscow, Russia, on Tuesday, Nov. 23, 2010. Russia's government plans to sell OAO Moscow Metrostroy, the 79-year-old company that built Moscow's subway system, as Mayor Sergei Sobyanin seeks to expedite the expansion of the capital's transportation network to ease traffic congestion.

Photographer: Andrey Rudakov/Bloomberg

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Russia is prepared for higher borrowing costs in the market as a result of concerns about possible U.S. sanctions, although the budget fallout would be limited, according to Deputy Finance Minister Vladimir Kolychev.

Investors are growing uneasy before a report by the U.S. Treasury, due next quarter, on the possible effect of sanctioning Russian sovereign debt. While local bonds are among the best performers in emerging markets this year, yields have been rising since mid-October. The bid-to-cover ratio at last week’s auction of ruble debt known as OFZs dropped to the lowest since July.