UPDATE 1-Russian finance ministry cancels weekly bond auction

Wed Feb 19, 2014 5:43am EST

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MOSCOW Feb 19 (Reuters) - The Russian finance ministry said on Wednesday it cancelled its weekly auction of OFZ treasury bonds due to lack of demand, underscoring a turn for the worse on Russia's volatile financial markets.

The ministry said orders were insufficient at "the prices adequately reflecting the credit quality of the issued bonds". It had been planning to sell up to 20 billion roubles ($561 million) in two separate auctions of bonds maturing in 2020 and 2028.

On the secondary market, Russia's 2028 OFZ treasury bond was yielding 8.51 percent on Wednesday.

The last-minute annulment of the auction came as Russia's financial markets fell, with concerns about the violent political crisis in neighbouring Ukraine adding to poor sentiment.

The rouble hit a record lows against the euro and its dollar-euro currency basket, after the finance ministry announced on Tuesday it would be buying $100 million in foreign currency each trading session to replenish its Reserve Fund until the end of May, in effect reducing central bank interventions to support the rouble.

Russian share indexes were also lower.

On Tuesday, the central bank said the U.S. Federal Reserve's policy of reducing its monetary stimulus was negative for Russian borrowers, and could end up raising yields on Russia's long-term OFZ treasury bonds by 1.2-1.7 percentage points. (Reporting by Elena Orekhova, writing by Jason Bush; Editing by Elizabeth Piper and John Stonestreet)

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