OFZ: Minfin becomes less aggressive on the primary market

RUSSIA ECONOMICS - In Brief 22 Sep 2021 by Alexander Kudrin

---

This week the Finance Ministry offered the market a preliminary fixed amount of OFZ (R15 bln), the first time since the middle of July. During the previous auctions, the supply was not limited and the borrower made the decision regarding the size of the placement after collecting the orders. Today’s auction collected bids worth R38.7 bln and the desired amount was placed in full at 7.14%. The term of the paper was 4 years, Minfin placed such a short-term bond last time more than three months ago.These steps may be treated as a sign that the government’s borrowing policy is turning less aggressive. The reasons for that are obvious. On the one hand, the issuance plan for Q3 has already been exceeded by R45 bln (Minfin already raised R745 bln since the beginning of the quarter vs initially announced R700 bln). Besides that, budget revenues are higher than expected and borrowing seem to be more an option rather than necessity. On the other hand, during the last several weeks the yield for long-term papers went up by 15-20 bps and placing new paper at this level may be considered as expensive.Several weeks ago GKEM Analytica mentioned the potential changes in the behavior of the Finance Ministry, which are now observed on the open market. However, these steps are not enough to reverse the upward trend in OFZ yields. Inflation has climbed close to 7% and until signs of its slowdown appear, investors are unlikely to add exposure to OFZ.Evgeny GavrilenkovAlexander Kudrin