For those of us in muniland used to massively oversubscribed municipal bond offerings, this report from the Moscow Times came as a shock:

In its first municipal bond issue in recent years, Moscow managed to sell only 35 percent of the securities on offer, raising 6.85 billion rubles ($212 million).

The city floated three-year bonds worth 20 billion rubles on Wednesday with a yield of 7.12 percent, said Alexander Kovalenko, deputy head of the city’s finance department.

It’s hard to imagine Citi or Merrill Lynch doing a $1 billion bond underwriting for Chicago if they were only able to sell $350 million of the deal. Usually if a U.S. underwriter cannot find enough buyers, a deal is postponed or the yield is pushed up until there is enough interest to get the deal completed. Not so in Russia.

This history of the Russian municipal bond market illuminates how an infant bond market works. For example, in the U.S. market we assume that issuers will use the proceeds of the offering exactly as described in the offering statement. But Russian sub-federal muni bond proceeds might be used for a variety of purposes: