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. Last Updated: 07/27/2016

Yields Soar As Market Hits Low

Concern that Russia has failed to break free of its liquidity crunch sent government debt yields soaring to more than 90 percent Friday, even as the equities market skidded to a two-year low.

Average-weighted yields on one- to three-month treasury bills rose to 55.30 percent from 39.43 percent Thursday, while nine- to 12-month paper yields jumped to 94.17 percent from 77.83 percent the previous day. Trading volumes were low.

Some of the pessimism was fueled by the government's announced intention to auction 6 billion rubles ($960 million) worth of government paper next Wednesday -- the first primary auction since the restructuring of the bond market. The move appeared to be one of desperation.

"The best thing is to cancel the auction," said Denis Rodionov, an analyst at Brunswick Warburg. "Yields won't go down by Wednesday and there is no point in trying to raise money at [these rates]."

The debt-market gloom quickly spread to corporate paper, with the Moscow Times Index of 50 leading shares closing at 95.81, down 3.74 percent for the day and 12.58 percent for the week.

The index closed at its lowest point since June 1996, with volumes a mere $26 million.

Dan Rappaport, director of equity sales at CentreInvest Securities, said stocks suffered from a general concern about emerging markets and, in particular, fears that China might devalue the yuan.

"We thought we were doing a little bit better in the last few days with the [State] Duma reconvening to deal with the crisis, the World Bank approving some money, the IMF seeming to be happy," he said. "But we just saw day after day of selling."

Russia's lending institutions also took a hit Friday as the international ratings agency Fitch IBCA announced cuts in the long-term credit ratings of 10 banks, including Dialog Bank, Menatep, National Reserve Bank and Alfa Bank, Reuters reported.