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. Last Updated: 07/27/2016

Government Reopens Domestic Bond Market

Russia on Friday relaunched its domestic state debt market after almost half a year break, but the authorities annoyed traders by changing the rules at the last minute.

Yields quickly hit 120 percent, a limit set by the Central Bank just minutes before trade was due to begin. Government paper had yielded as much as 213 percent when the market was closed Aug. 17.

That was before the ruble lost 70 percent of its value against the dollar.

"The yield cap killed enthusiasm for taking a gamble, if there was any," said a Western dealer in Moscow.

Andrei Kozlov, Central Bank first deputy chairman and the architect of Russia's domestic debt market, wished banks good luck before the start of trading and congratulated the first investor who bought one long-term government bond, or OFZ, at a 60 percent yield.

But that level lasted only for a few trades and only 44 deals for 1.44 million rubles ($65,800 at Saturday's official rate) were carried out in the entire session.

"No one is ready to buy securities with a tenor of between a year and six years at 120 percent," the Western dealer said.

The Finance Ministry securities department head Bella Zlatkis said she hoped the Central Bank would leave the cap in place for some time. "If the limit was lifted, the yields would be extremely speculative," she said.

Dealers had expected yields of 150 percent to 400 percent.