By Tommy Stubbington and Andrey Ostroukh
A fresh round of U.S. sanctions once again ripped into Russia's
markets, with stocks, bonds and the ruble taking a hit.
The new restrictions, which target Russian state-controlled oil
giant OAO Rosneft and other top firms, follow weeks of U.S. threats
that Russia would face repercussions unless it helped defuse the
crisis in eastern Ukraine, where pro-Russia separatists have been
fighting the Ukrainian government for months.
Moscow's MICEX index slid 2.4%, with investors interpreting the
measures as more likely to hold back the Russian economy than
previous sanctions. By the end of the day, the index capitalization
shrank by $4.4 billion.
Rosneft shares fell 4.5%, while gas company Novatek--also a
target of the new sanctions--shed 5.5%.
The yield on Rosneft's benchmark bond due 2022 jumped to 6.1%
from 5.3% the previous day, according to Tradeweb. The increase
reflects a rise in the interest rates at which investors would be
willing to lend to the company.
The ruble fell 1.0% against the dollar to trade at 35.022, its
weakest level in six weeks. Against the euro, the ruble shed 1.0%
to 47.39 but was still far from its all-time low of 51.2 seen in
early March.
Government bonds were also hit. The yield on a Russian bond
maturing in 2023 climbed to 4.78% from 4.48%. Yields rise as prices
fall.
The sanctions "tighten the screws on Russia," said Viktor Szabo,
a portfolio manager at Aberdeen Asset Management, which has $541
billion under management.
"The weak point of the Russian economy is investment. For
investment you need financing and this makes it more expensive for
Russian companies in general," he said.
Despite a recent improvement in Russian economic data, Aberdeen
remains underweight in its allocation to Russian bonds, Mr. Szabo
added.
"The Russian economy had already slowed materially during the
first half of this year, and the new, more biting economic
sanctions are likely to dampen investor expectations for an
economic rebound in the second half of this year," said Lee
Hardman, a currency analyst at Bank of Tokyo Mitsubishi UFJ.
Sanctions also hit Gazprombank, the bank connected with the
country's gas-export monopoly; and Vnesheconombank, or VEB, a
state-owned development lender that provided much of the backing
for the Sochi Olympics construction project.
Gazprom was down 1.75%.
The U.S. Treasury Department will now limit the sanctioned
firms' access to equity financing and medium- and long-term debt
coming from investors and lenders with ties to the U.S.
The sanctions also cast a shadow over wider financial markets,
with investors pulling back from risky assets.
European shares fell, with the Stoxx Europe 600 index closing
almost 1% lower.
Austria's Raiffeisen Bank and German retailer Metro, which both
have a large presence in Russia, fell 3.6% and 2.8%,
respectively.
Elsewhere, troubled Portuguese lender Banco Espírito Santo was
under renewed pressure, falling 7.9% following a downgrade to its
credit rating by Standard & Poor's. BES shares have collapsed
in recent weeks amid concerns about the financial health of its
parent companies.
In currency markets, the Japanese yen, which is seen as a haven
by investors and typically rises in times of stress, added 0.1%
against the dollar to trade at Yen101.35.
The rally in government debt sent French 10-year yields to a
record low of 1.48%.
Gold, another safe-harbor investment, climbed 0.4% to $1,305.10
an ounce.
European leaders meeting in Brussels agreed to further sanctions
against Russia on Wednesday. The decision will likely allow for
Europe to cast its sanctions net wider, although the specific names
to be added their list have yet to be decided.
Matt Wirz, Chiara Albanese and Andrea Tryphonides contributed to
this article.
Write to Tommy Stubbington at tommy.stubbington@wsj.com and
Andrey Ostroukh at andrey.ostroukh@wsj.com