MOSCOW — Russia sold only one-fifth of the bonds it offered at its first debt auction since November as investors demanded yields higher than it was willing to pay amid concern the government will lose its investment-grade credit rating.
The Finance Ministry rejected 87 percent of the bids received at an auction of $76 million of May 2016 notes Wednesday. While the government paid an average yield of 15.27 percent, almost five percentage points more than at its last sale of the debt in November, that was still 125 basis points below the yield at Tuesday’s close.
The size of the sale underlines the challenges Russia faces in tapping local debt markets to finance its biggest budget deficit as a percentage of economic output since 2010. Standard & Poor’s is in the midst of a so-called negative watch assessment of Russia, with at least a 50 percent chance the sovereign will be cut to junk this month as oil’s slide pushes the economy to the brink of a recession.
“The fact that investors aren’t willing to purchase Russian debt at 15 percent interest rates tells you something has gone wrong somewhere,” Neil Shearing, the chief emerging-markets economist at Capital Economics Ltd. in London, said by phone. “There’s a growing acknowledgment that Russia’s public finances are on an unsustainable footing.”
