June 27, 2018 / 3:19 PM / 5 months ago

Russia misses second quarter borrowing target as U.S. sanctions bite

MOSCOW (Reuters) - Russia managed to borrow less than a half of what it aimed to in the second quarter as U.S. sanctions against Moscow and the Bank of Russia’s monetary policy disrupted debt issuance plans, finance ministry data showed on Wednesday.

In March to June period, the finance ministry raised 218 billion rubles ($3.45 billion) via OFZ rouble-denominated treasury bonds, out of 450 billion rubles envisaged in the second-quarter borrowing plan.

For months, Russia’s OFZ bonds were among the top picks globally thanks to their lucrative yields. That changed in early April when the United States announced fresh sanctions to punish Russia for “malign” activities.

The sanctions boosted aversion to Russian assets and prompted the finance ministry, which aims at raising around one trillion rubles in the whole of 2018, to cancel some of its weekly OFZ auctions.

Foreign investors’ share of holdings of OFZ bonds fell to 30.5 percent as of June 1 compared with 34.5 percent as of April 1, before the latest round of sanctions, the central bank data showed earlier this week.

The central bank also capped demand for OFZ bonds by saying earlier this month it has nearly completed monetary policy easing, suggesting room for more rate cuts is limited.

OFZ yields are pegged to the central bank’s rate. When the central bank’s rate goes lower, it drags down OFZ yields which, in turn, pushes OFZ prices higher. Betting on central bank rate cuts was one of strategies used by buyers of OFZ bonds.

Still, OFZ yields remain attractive compared with other emerging markets, and foreign investors could gradually return into rouble assets, said Olga Sterina, an analyst at Uralsib Bank.

On Wednesday, the finance ministry sold all 20 billion rubles of OFZ treasury bonds on offer at two auctions where demand reached almost 63 billion rubles.

The central bank has already said earlier this month that foreign investors were returning to Russian bonds and were seen buying into OFZ bonds in late May.

Reporting by Elena Fabrichnaya and Andrey Ostroukh; Editing by Toby Chopra

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