Finance Ministry cancels OFZ placement this week

RUSSIA ECONOMICS - In Brief 18 Aug 2020 by Alexander Kudrin

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The Russian Ministry of Finance authorities decided not to conduct OFZ primary placement this week. To remind, last week the Finance Ministry failed to attract enough demand at reasonable yield and canceled the placement. This week the cancelation was made in advance. During the last three weeks yield moved up by 30-50 bps in the long end of the curve. Both local and international investors preferred to take profits as the potential for more rate cuts by the CBR is seen limited. Meanwhile, the 25 bp key rate cut, orchestrated by the CBR at the end of July, looked a bit premature - GKEM Analytica's view was that this 25 bp cut would have been better delivered later in the year. Besides, the ongoing turbulence in Belarus in the aftermath of the presidential election creates additional pressure on the OFZ yield curve as some foreign investors may have concerns about possible scenarios of the resolution of the political crisis in the country, some of which may be negative for the Russian financial markets.In this environment, investors are likely to request additional placement premiums, which the Finance Ministry is not ready to pay. As a result, the Russian government was not able to raise money from the market for the second week in a row. Last time such a poor result was observed in March when authorities had to make a one-month break in primary placements due to excessive volatility at the initial stage of the pandemic. GKEM Analytica mentioned in the previous notes, the government has certain flexibility in borrowing as it remains unclear how much additional expenditures will be allocated this year. Besides, authorities have enough money on the treasury accounts so t...