​Minfin doesn’t rule out buyback of floating-rate OFZs

RUSSIA ECONOMICS - In Brief 13 May 2021 by Alexander Kudrin

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Today deputy Finance Ministry Mr Maximov said that the government is considering the launching of special tools to manage structure of sovereign debt. In particular, he mentioned that the current amount of floating-rate OFZs in circulation looks excessive and it would be reasonable to decrease it with the help of operations in the open market. Indeed, last year the Finance Ministry issued an excess volume of floaters and in such a way accepted additional interest rate risk, which looks important on the back of the growth of the key rate. As of April 28, their share in the total amount of OFZs was 31.8%, while the optimal level is estimated by the borrower at 15-20%, although GKEM Analytica thinks that 25% looks quite acceptable as well. Most likely the government expected greater demand for fixed-rate paper this year. If so, the share of floaters would decline naturally. Unfortunately, the acceleration of inflation and the U-turn in CBR monetary policy pushed the yield curve higher and cut the demand for fixed-rate paper. In this situation the Finance Ministry should think about alternative methods of managing interest rate risk. Mr Maximov mentioned that the government may buy a certain portion of floating-rate paper from the market. If it is assumed that the Finance Ministry plans to decrease the share of these bonds in the total amount of OFZs from 31.8% to 20% immediately, it means that about R2.2 trln should be purchased by the issuer. Of course, open market operations may assume not a buyback, but a swap from floating to fixed-rate bonds, but, in any case, such an operation seems to be a complicated task. In the current environment investors prefer to keep their ...