. Last Updated: 07/27/2016

Influx of Foreign Cash Sparks Sharp Increase in T-Bill Prices

A larger-than-expected influx of foreign money into the Russian treasury-bill market allowed the Finance Ministry to sharply bid up prices Wednesday, while annualized yields correspondingly fell back from last week, dealers said.

Yields fell to an average of 67.97 percent on the auction of six-month treasuries, down from 78.18 percent in last week's auction. Demand was extremely healthy at the weekly primary auction, which was heavily oversubscribed.

"There were a lot of foreign bidders, and that allowed prices to be dictated aggressively," said one fixed-income trader. "There was excess cash in the market and a large chunk of it was dedicated to GKOs," the Russian acronym for state treasury bills, he said.

The surge was likely tied to nonresidents gearing up for more active T-bill trading. Market players also said the surprisingly strong demand was very much in line with activity in the equities market.

One trader confirmed that big orders from one foreign buyer -- through the Central Bank's recently-authorized special "S" accounts in one of 21 accredited banks -- "allowed the Central Bank the luxury of being able to dictate terms of the auction."

"Foreign participation was the impetus, what with S-account structures finally coming together," he added.

The new rules for non-residents participating in the T-bill market took effect Aug. 15 and gave them broader access to the Russian market. There is no limit on the amount that can be repatriated from these accounts.

Nominal demand was 11.86 trillion rubles ($2.2 billion) for the 7.5 trillion ruble issue, and the Finance Ministry placed 7.404 trillion rubles of GKOs, according to a preliminary Central Bank report.

Most traders are betting that in subsequent secondary auction Thursday, yields should recover.