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By Bloomberg

Russia sold the biggest tranche of its longest-maturity fixed-rate debt in seven months, tapping demand from investors seeking to lock in higher interest rates as the government and central bank sell rubles.

Investors bid for more than three times the 10 billion rubles ($200 million) of OFZ bonds offered at the auction. That allowed the Finance Ministry to sell the January 2028 notes at a weighted average yield of 10.56 percent, or 14 basis points below the close on Tuesday. Demand for the nation’s fixed-rate debt is growing as the Bank of Russia unwinds 2014 rate increases that totaled 11.5 percentage points.

The auctions on Wednesday -- which also includes 10 billion rubles of floating-rate notes due in December 2017 -- comes as the ruble fell for a second day, driven lower by central bank and Finance Ministry purchases of foreign currencies. Projections for policy makers to lower benchmark borrowing costs to less than 10 percent by year-end have enabled Russia to boost fundraising as it finances a fiscal deficit.

“The auctions are going so well lately that even the ruble may not stop them,” Olga Sterina, an analyst at UralSib Capital in Moscow, said in e-mailed comments. “On top of that, the central bank is increasing the amount of ruble liquidity by buying dollars, which may partially trickle into the bond market.”

The Finance Ministry has raised 164 billion rubles in the second quarter out of the 250 billion rubles planned, so it would “prefer not to place the full amount than pay a premium to the secondary market,” VTB Capital analysts Maxim Korovin and Tatiana Zueva said in an e-mailed note.

Sell Signal

The ruble lost 1 percent to 50.0790 per dollar by 2:21 p.m. in Moscow. The Micex Index of equities decreased for the third day to the lowest level since April 23, losing 1.2 percent to 1,638.91.

The joint central bank-government effort to sell rubles is signaling they regard its 21 percent appreciation this year -- the biggest worldwide -- as overdone. While the stronger currency damps inflationary pressures it also threatens to curb Russia’s export earnings in local-currency terms. The nation’s budget deficit is set to widen to 3 percent of gross domestic product this year, the biggest since 2010, forecasts compiled by Bloomberg show.

“The ruble may strengthen excessively on portfolio inflows if the authorities provide no signal to the market that they are ready to act,” Tatiana Orlova, a senior economist for Russia and the Commonwealth of Independent States at the Royal Bank of Scotland in London, said by e-mail.