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. Last Updated: 07/27/2016

Growth Fears Push Demand for T-Bills

Investors reaped in premiums of up to 2 percent from Finance Ministry treasury-bill auctions Wednesday following continued uncertainty over Russia's economic health.

Dealers also said investors hoped to cash in on higher yields on the secondary market Thursday.

Demand, bolstered by the presence of foreign investors, was strong at a one-year treasury bill auction, but unlike at previous auctions most nonresidents, as well as local banks pinched for rubles, offering competitive bids, dealers said.

The annualized average weighted yield on a one-year treasury-bill issue was 33.94 percent with a maximum yield of 34.38 percent, compared with 32.28 percent for the 352-day issue on Tuesday's secondary market.

The yield was higher than expected by dealers, who had predicted the average yield would be in the 31.45 percent to 33.78 percent range.

The annualized average yield on a new 903-day tranche of Russian OFZ bonds was 37.88 percent with the maximum yield of 38.94 percent, compared with 36.46 percent on the secondary market Tuesday.

"The euphoria linked to the appointment of [Prime Minister Sergei] Kiriyenko and the formation of the new government evaporated quickly," one dealer said.

He said President Boris Yeltsin's warning Tuesday that the current rate of growth of government debt was unacceptable had wiped the smiles from many faces, and the onset of clear-eyed realism pushed up yields Tuesday.

"That is why it was quite logical to ask for a premium, which turned out to be even a bit higher than expected," he said.

Dealers forecast that during secondary trading Thursday yields would climb to the new level of around 34.0 percent set at the auction.

Meanwhile, a senior government official said the Finance Ministry will not raise more funds than needed to pay maturing issues at next week's auction.

The Central Bank said the ministry would auction 5.50 billion rubles ($900 million) of 182-day T-bills, 9.50 billion rubles of 364-day T-bills and 4 billion rubles of a new 1,218-day tranche of OFZ bonds next Wednesday.

Russia has to pay only 9 billion rubles in maturing T-bills, despite the 19 billion rubles on offer. But the Finance Ministry's securities department head, Bella Zlatkis, said the ministry might even cancel the third auction.

"Maybe, we won't need to carry it out," she said. "The first paper to be placed will be the 182-day T-bill, then the next T-bill, and then we will have a look. Such a wide choice gives us the possibility to manoeuvre, and besides, we show our priorities -- what kind of paper we would like to place."