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. Last Updated: 07/27/2016

Bond Sales Firm, Show Confidence

The Finance Ministry has sold 100 billion rubles ($63.8 million) in short-term treasury bills at its 10th monthly auction, suggesting that markets are recovering from the nation's shift to a conservative government, securities experts said Wednesday.

Commercial banks oversubscribed the issue Tuesday by about 12 percent, while average yield on the three-month bonds grew to 210.09 percent, compared to 187.67 percent at the ninth auction Jan. 18.

Although the high yield of the bonds reflected continuing inflationary fears, the demand was a considerable improvement over the January auction, where the Finance Ministry managed to sell only about 80 percent of a 120-billion-ruble issue.

At the time, the resignation of reformer Yegor Gaidar from the cabinet scared banks into pulling their orders for bonds, which the government uses to fund some of its deficit

Alexander Sarchev, securities expert at the Moscow Interbank Currency Exchange, where the bonds are traded, said that the issue's success showed new market confidence.

"The period of perplexity connected with the change in the government has passed," he said.

Sarchev said the Finance Ministry could probably return to its policy of significantly increasing the volume of issues every month. Before the January auction, bond issues had doubled in size for two months in a row.

"It is possible that volume could rise by 20 to 25 percent each month," Sarchev said. "The next auction should attract a lot of investors because the yield at this month's auction was the highest yet."

Bella Zlatkes, head of the Finance Ministry's public securities and financial markets department, said while the bonds' high yield makes borrowing more costly for the government, it could have been expected in Russia's inflationary environment. Inflation hit 22 percent in January, compared to a monthly yield on the short-term bonds of about 20 percent.

Zlatkes noted that the annual rate at which banks lend to each other has risen to about 230 percent for a three-month loan, compared to less than 200 early in the year.