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. Last Updated: 07/27/2016

Drop in T-Bill Yields Expected to Continue

Yields on state Treasury bills are likely to continue to fall as the economy stabilizes, the head of the Finance Ministry's securities department said Thursday, announcing that the government plans to launch two-year paper as well as bonds for sale on the international market.

Bella Zlatkis said T-bill auctions this year have so far earned 7 trillion rubles ($1.4 billion) for the national budget and that she expected the program to reach its target of 32 trillion rubles by the end of 1995 to cover Russia's budget deficit.

"We expect yields to be falling," Zlatkis told a news conference. "We are satisfied with how we place the state debt and with how we serve it. The price of borrowing is not too high, but optimally acceptable."

Annualized yields at Wednesday's three-month T-bill auction plunged to 139.79 percent from 163.46 percent at the previous issue.

Commercial banks heavily oversubscribed the 4-trillion ruble issue, placing bids for 5.4 trillion rubles. Money flew to the T-bills market from the hard currency and interbank credit markets, which had recently become flat, said Yury Zhuravel, a state debt expert with MOST-Bank.

The government only sold enough to pay off a previous issue, cutting off bids with a high yield, Zhuravel said.

The government introduced T-bills two years ago in an attempt to shift the means of deficit financing from printing money to the less-inflationary method of issuing securities, which soak up rubles from the economy for a time.

The downside is that the government increases its debts as it pays off previous issues, but falling inflation allows it to reduce the yields offered to investors.

Andrei Kozlov, deputy chairman of the Central Bank, trumpeted the success of the T-bill program at Thursday's news conference.

"The T-bill program is the most successful project in the whole history of the Russian economy," said Kozlov, the program's architect.

Since 1993, the Finance Ministry has carried out 60 auctions of T-bills, selling 57 trillion rubles worth of securities, Kozlov said.

It had paid off 40 trillion rubles worth of T-bills, while 17 trillion rubles worth of bills are still in circulation, he said. The Finance Ministry has earned 12 trillion rubles of net profit for the budget since the scheme began.

Zlatkis said net earnings for the year so far -- which has seen a marked acceleration in the program -- were 7 trillion rubles.

The Finance Ministry is planning to earn 19 trillion rubles by the end of the year. On June 8, the ministry will also issue the first two-year bills, Zlatkis said.

All in all, the 1995 budget envisages 32 trillion rubles of T-bill sales to cover more than 40 percent of a projected 73-trillion ruble deficit.

Zlatkis said the Finance Ministry would meet the target.

The Russian government also plans to sell T-bills on international markets, Zlatkis said, but she gave no further details.