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Investors can’t get enough of Russian bonds targeted by US sanctions

The Russian Ministry of Finance has issued euro-dominated obligations worth €1.5 billion ($1.8 billion), marking the first international bond sale of 2021.

“Despite the widening of anti-Russian sanctions this year, international investors still show sufficient interest in investing in Russian debt instruments,” it said.

The ministry sold €1 billion in a new 15-year Eurobond with a yield of 2.65%, and another €500 million in an issue of 2027 Eurobond at 98.5% of its nominal prices, according to VTB Capital, which arranged the deal together with Russian banking majors Gazprombank and Sberbank.

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Russian investors reportedly purchased 47% of the 2036 bond, with 22% allocated to buyers in Germany and Austria, 14% to the Middle East and Asia, seven percent to the UK and six percent to France. Investors from Russia bought 65% of the 2027 issue, while investors from the Middle East and Asia bought 20%, and French investors bought 11%.

The deal comes a month after the US placed sanctions on ruble-denominated debt sales and ahead of a summit between President Vladimir Putin and US President Joe Biden scheduled for next month.

The latest round of anti-Russian penalties bans direct purchases of Russian ruble-denominated sovereign debt from mid-June. The ban comes in addition to the already existing restriction on the direct buying of sovereign Eurobonds issued by the Russian government.

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Earlier this week, Washington waived sanctions on Nord Stream 2 AG and its German CEO Matthias Warnig, citing concerns for American national interests, though it blacklisted four vessels and four entities involved in the construction of the Russian gas pipeline.

The existing sanctions targeting Russian bonds, and the threat of further punitive measures by the White House, has failed to deter foreign interest. Relatively high yields and low levels of government debt make Russian bonds attractive for foreigners. Non-residents reportedly hold as much as 54% of Russia’s Eurobonds, even as the share of domestic bonds held by foreign investors dropped from 35% last year to 19% last month.

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