Investors refuse to lend to Russian government

The Russian government continues to struggle to borrow money on the market due to the mass exodus of foreign investors and the reluctance of the major Russian banks to risk US sanctions, reports.

At the auction which was held on Wednesday, the Russian Finance Ministry failed for the second consecutive week to raise the targeted capital through Federal Loan Bonds (OFZs).

Investors were offered 15 billion rubles of 3-year bonds and 5 billion of 11-year bonds, but the budget was only able to solicit 17.1 billion out of the planned 20 billion rubles.

The failure of the short-term OFZ 25083 auction was a “surprise”, says Loko-Invest analytics director Kirill Tremasov: these bonds are targeted at Russian investors, whereas foreigners prefer the long-term OFZs.

The Finance Ministry only managed to sell 80% of the issuance, and was forced to give discounts: the yield at the end of the auction was at 8.25%, as compared to 8.2% at the end of trade on Tuesday.

Judging by the results, major investors chose not to attend the auction, observes GK Region analyst Alexander Yermak.

The Russian banks which the Russian government and Central Bank have placed their hopes in are afraid of possible sanctions on government debt. As a result, the price of government bonds, which has already fallen by 10% since start of the year, risks declining even further, according to analysts from Raiffeisen Bank.

In summer, the government debt market, having seen the withdrawal of 520 billion rubles of non-residents’ capital, was saved by Russian pension savings. Non-government pension funds became the primary buyer during the crash. But their resources are limited, much like the banks that are buying OFZs on credit, notes Raiffeisen Bank analyst Denis Poryvay.

The banks’ accounting records indicate that they invested 56 billion rubles in OFZs in September, whereas the state bonds not used as collateral for loans has shrunk by 221 billion rubles.

  Russia, Russian banks, ruble, Raiffeisen Bank Aval