Sunday 11 December 2016

Syria tensions hit Russian bond sale

Maria Levitov

Published 29/11/2015 | 02:30

The outcome underscored how quickly geopolitical events can sour investor sentiment as Turkey's downing of a Russia warplane marked the first direct clash between foreign powers embroiled in the Syrian civil war.
The outcome underscored how quickly geopolitical events can sour investor sentiment as Turkey's downing of a Russia warplane marked the first direct clash between foreign powers embroiled in the Syrian civil war.

Russia fell short of its ­fundraising target at a bond auction this week in the worst result in eight months as investors placed bids for ­under 40pc of the 10bn rubles ($143m) of floating-rate debt offered.

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The outcome underscored how quickly ­geopolitical events can sour investor sentiment as Turkey's downing of a Russia warplane marked the first direct clash between foreign powers ­embroiled in the Syrian civil war.

A slowdown in issuance risks makes Russia's 1 trillion-ruble 2015 sales target harder to attain as Moscow seeks to close its biggest budget gap as a percentage of economic output since 2010. That will force the country to draw on more cash from its rainy-day fund at a time when oil, the main export earner, is languishing near six-year lows. Just last month, Goldman Sachs Group and Bank of America Corp were recommending the nation's local debt, known as OFZs.

"Sentiment can change very quickly," said Simon Quijano-Evans, Commerzbank AG's chief emerging-markets strategist. "If there is a serious escalation between Turkey and Russia, foreign investors would likely become more cautious, placing more emphasis on demand from domestic investors."

Yields on Russia's five-year OFZs climbed 24 basis points last week to 9.95pc, almost reversing a rally last week that was triggered by optimism that Vladimir Putin was forging an alliance with the US to counter ISIS in Syria. While the Russian president ruled out any military retaliation against Turkey, a member of Nato, Foreign Minister Sergei Lavrov said on Wednesday that Turkey's move may have been premeditated. The Finance Ministry placed 1.29bn rubles of floating-rate notes due in December 2017 after receiving bids amounting to 3.99bn rubles. It was seeking to raise 10bn rubles. A 5bn-ruble offering of fixed-coupon debt fell 29pc short as the government placed the May 2020 securities at an average yield of 10.21pc, the highest in almost two months.

Sanctions over the Ukraine conflict and a 41pc collapse in oil prices in the past 12 months drove the economy into a recession and caused the deficit to widen to a projected 3.3pc of GDP this year, the biggest shortfall since 2010.

As the US and European penalties pushed up borrowing costs last year, Russia cancelled at least two dozen auctions.

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