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. Last Updated: 07/27/2016

Ministry Drives Down One-Year T-Bill Yield

The Russian government's second auction of one-year treasury bonds Wednesday drew renewed interest from investors, but the Finance Ministry ultimately sold only about one quarter of the issue, in a move to sharply lower yields on the bonds, experts said.


The government sold only 104 billion rubles ($32.5 million) in one-year bonds at the Moscow Interbank Currency Exchange on Wednesday, or just over a quarter of the 400 billion ruble tranche.


But the average annualized yield on the bonds fell to 303.22 percent, compared to a sky-high 450 percent at the first-tranche auction last month, when the government sold only a third of the 200 billion ruble issue. Both tranches have the same maturity date: Oct. 26, 1995.


Dealers placed more than 750 billion rubles in bids at the auction, but most were at a higher yield than the government was willing to accept, said Mikhail Laufer, a securities expert at the exchange.


"The Finance Ministry just did not want to sell at a high yield," Laufer said.


The government uses the one-year treasury bonds to plug its budget deficit. The higher the bonds' yield, the higher the cost of financing deficit spending.


Vitaly Sotnikov, a bonds expert at the Rinaco-Plus brokerage firm, called the Wednesday sale a "political auction," meaning that the Finance Ministry was determined to meet the target of maintaining the yield at around 300 percent.


"The Finance Ministry's position was uncompromising, and I think it was right," Sotnikov said. "It has fulfilled its political goal and set favorable conditions for a large-scale auction of the three-month bills that is scheduled for next week."


Sotnikov explained that many dealers did not withdraw their deposits from the exchange after their bids for one-year bonds were dropped. This unwithdrawn money -- an estimated 250 billion rubles -- will go into the secondary market for treasury bills, which in turn would be expected to drive yields down on the eve of the 1.4 trillion ruble auction of three-month bills that is scheduled for Dec. 6, Sotnikov said.