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. Last Updated: 07/27/2016

Sales Down on 6-Month T-Bills

Yields on three-month treasury bills swung upward this week as the government suffered a setback in its attempts to attract investors' interest in its longer-term bonds.

At its seventh issue of six-month bonds Wednesday at the Moscow Interbank Currency Exchange, the Finance Ministry managed to raise just 624 billion rubles ($267 million) from an issue of 1.1 trillion rubles, as brokers shied away from what is seen as a riskier investment than its three-month cousin.

But even the more popular three-month bill was given a rough ride Tuesday, with the Finance Ministry forced to raise the yield of its 1.1 trillion ruble issue by around 8.5 points to an annualized average of 120 percent.

Analysts attributed the rise in yields and lack of interest in six-month bills to the large volume of the issues and competition from other forms of investment.

"Banks aren't prepared to buy T-bills for low yields when it's possible to get returns of 180 percent on hard-currency trading," said Vadim Afadov, head of the financial resources department at the Russian Brokerage House.

Alexei Dolgikh, head of fixed income at Troika-Dialog, said the large volume of the two auctions, scheduled so close together, could have put more T-bills on the market than banks were prepared to buy.

While the volume of this week's auctions was not unprecedented -- a 1.5 trillion ruble issue was made in June -- the frequency of new issues of three-month T-bills has grown to once every two weeks since August, soaking up trillions of rubles worth of liquid capital.

Yields on three-month T-bills have declined steadily from 214 percent in March, as the Finance Ministry, which sets the volume of the issues, has tried to bring interest rates downward to encourage productive investment. The Central Bank has cut its refinancing rate, the rate at which it lends to commercial banks, from 210 percent in April to its current level of 130 percent.

Wednesday's issue was undersubscribed with banks placing bids for just 921 billion of the 1.1 trillion ruble 6-month issue.

Of this level of demand, only a nominal 882 billion was sold with an annualized yield of 138 percent, raising 624 billion to finance Russia's budget deficit.

In contrast, Tuesday's issue of three-month bills was oversubscribed with 1.6 trillion rubles worth of bids placed and almost the entire issue sold, earning 917 billion rubles.