By Lidia Kelly
MOSCOW Feb 4 Russia's finance ministry
cancelled its weekly domestic bond auctions for the second week
in a row on Tuesday, saying in a statement the decision was
"based on an analysis of current market conditions".
Yields on so-called OFZ bonds have risen by 70-80 basis
points since the start of the year. A new ministry sale could
have potentially pushed the rates higher, analysts said.
Emerging markets such as Russia have been hit hard this year
by outflows from investors following the U.S. Federal Reserve's
tapering of its monetary stimulus.
The rouble brushed close to its record low in early trading
on Tuesday, reaching 41.17 against the dollar-euro currency
basket, but reversed the loss later when it was up 1
percent against the basket to 40.69.
The finance ministry announcement to postpone foreign
currency purchases on the forex market to replenish one of its
sovereign wealth funds by nearly $6 billion while the rouble is
weakening was a major reason behind the currency's firming.
The central bank, which reiterated its pledge last week to
launch unlimited foreign exchange interventions if the rouble's
exchange hits the edge of its target corridor, spent the most in
nearly five years last month on propping up the
COMFORTABLE FISCAL POSITION
The finance ministry's decision to cancel the auction was
seen as a tactical move not to pay excessive yields and had
virtually no impact on bond prices. The ministry has cancelled
auctions before, waiting for better market conditions improve.
Russia, which envisages a budget deficit of only 0.5 percent
of gross domestic product this year, is under no great pressure
to borrow. Its domestic borrowing plans call for placing 808
billion roubles ($22.86 billion) this year.
"Given the fact that the (rouble) weakening will provide
additional revenues to the federal budget, the finance ministry
can flexibly control the amount of borrowing and completely stop
placement, if it deems rates unacceptable in real terms," said
Alexei Tretyakov, head of Arikapital investment company in
But the cancellation illustrates the current volatile market
situation where there is a clear reallocation of capital from
emerging markets to developed markets, said Murat Toprak, an
emerging markets strategist at HSBC in London.
"If this is a lasting reversal it can raise crucial
questions about the way emerging economies' refinancing needs,"