Bonds Sold at Record 7.22% Yield

The country sold 3.1 billion rubles ($130 million) of bonds at a record yield a week after the Central Bank canceled a debt auction because of lack of demand.

The Central Bank offered an average yield of 7.22 percent on the 30-year notes, according to a statement on its web site Wednesday. The bank proposed selling 15 billion rubles but could only find buyers for one-fifth of the issue.

Investors are shunning Russian government debt on concerns that the Central Bank will increase benchmark rates to combat inflation. Policymakers raised borrowing costs to 6.25 percent last month after consumer prices rose at an annual rate of 12.6 percent in January.

The government should "offer more generous yields," or start offering shorter-dated securities to lure investors, said Mikhail Galkin, head of fixed income research at MDM-Bank. "The Finance Ministry needs to become more flexible and adjust its borrowing program."

The ministry plans to raise 374 billion rubles through bond sales this year, compared with 235 billion rubles in 2007. So far, about 42 billion rubles of notes have been issued.

The 30-year bonds are rated Baa2 by Moody's Investors Service, the second-lowest investment grade ranking, and two steps higher at A- by Standard & Poor's.