Analysts See Positive Signs As T-Bill Yield Slide Slows

Yields on state treasury bills may have started pulling out of their nose-dive Wednesday, continuing to fall at two primary auctions but clocking in stronger than most traders expected.


Perhaps more importantly, both auctions were oversubscribed -- one by 11 trillion rubles ($2.1 billion) -- resulting in a lot of unspent money which analysts say could be used to stabilize secondary markets in Thursday's trade.


"This auction had the potential to be an unmitigated disaster, and it wasn't," said Richard Deitz, head of fixed income at Renaissance Capital. "In fact, it wasn't even a mitigated disaster."


Last week's auction saw prices soar after the government announced it was going to use funds to satisfy President Boris Yeltsin's spending promises to the military-industrial sector. Russian bankers, seeing the government against the wall, pushed annualized yields up to 175.39 percent and 148.34 percent for the two auctions.


But this week, fears that yields would rise to more than 200 percent proved unfounded, with the government placing 3.9 trillion rubles worth of five-month paper at 188.49 percent, and 5.5 trillion rubles worth of four-month paper at 184.58 percent. Those yields are among the highest in the world.


"They [yields] are higher than last week's auctions but they're much lower than expectations ... so it's not that bad," said Thomas Reed, director of fixed income at Alliance-Menatep. "It's not the end of the world."


Analysts also said the secondary market -- which has seen average weighted yields continue to climb on the heels of the government's disastrous auction, hitting their peak Tuesday at 159.63 percent -- could see a strong rally given the high volume of rubles left over from Wednesday's auction.


Before banks can bid on the bond issue they must put their money on deposit with the Moscow Interbank Currency Exchange.


With 24.3 trillion rubles bid by banks and only 9.4 trillion rubles successfully placed, that leaves almost 15 trillion rubles sitting on MICEX looking for a purpose.


"The fact that you have so many funds obviously left in the system is very positive," Deitz said. "If the market follows true to form, we should see a very strong day tomorrow. But these days, I'd caution anyone from drawing too many conclusions."


He added that the existence of so many rubles put up for bid strikes out at recent claims that the market is suffering from a shortage of money.


"There's obviously cash in the system," he said.