Russia's Finance Ministry launched a closed subscription for a euro-denominated seven-year benchmark issue of bonds, Bloomberg and Vedomosti daily reported on November 27 citing unnamed banking sources.

The issue will test the strength of investor appetite amid the military crisis in the Azov Sea that started on November 25 and saw the ruble tumble in value to the dollar and federal OFZ rates fall the next day. Last time the Finance Ministry placed Eurobonds was in 2013 issuing seven-year bonds worth €750mn at 3.625% yield.

The choice of euro is in line with recent reports of the government aiming to curb the dependency on US dollar and Russian oil majors seeking to re-draft their supplies deals to euro to hedge against US sanctions risks.

In March, the Finance Ministry placed $4bn worth of Eurobonds that generated high demand of $7.5bn despite escalating tensions with the West. Overall the ministry budgeted $7bn of Eurobonds for 2018, out of which $4bn will be used to exchange outstanding bonds and $3bn is of net issues.

Analysts surveyed by Vedomosti note that currently the European Central Bank (ECB) interest rates are lower than the US Federal Reserve rates, which would made euro placement more attractive and less costly for the ministry in any case.

The analysts also believe that the issue could be placed with large Russian investors alone that would want to shield themselves from sanctions by investing in euro-denominated paper. The placement would also test the interest of European investors, should the US buyers be blocked from investing in Russian sovereign debt under tougher sanctions which are now due to be debated after the Christmas holidays.

In any case, the Finance Ministry is on its way to post its first budget surplus since 2011 at the end of this year. Russia’s federal budget revenues were RUB15.8 trillion ($233bn) in January-October 2018, exceeded expenditures of RUB12.78 trillion by RUB3.02 trillion ($44.1bn) handing the government a surplus of 3.6% of GDP.