​Minfin pushes OFZ yield curve up

RUSSIA ECONOMICS - In Brief 10 Feb 2021 by Alexander Kudrin

---

Today the Finance Ministry conducted three primary OFZ auctions and raised R49.4 bln (in three placements), the best result since the beginning of the year. However, the cost that the borrower paid looks high. As a reminder, last week the Ministry cancelled the placement of fixed-rate paper due to absence of demand at “reasonable” price. The latter forced the borrower to change its strategy a bit and to increase the placement premium (in terms of yield) to 8-11 bps from 5-7 for fixed-rate paper. This helped to attract more demand, but also shifted the curve further up. Since the beginning of the year, the 10-year OFZ yield has grown more than 40 bps. This can be partially explained by a certain acceleration of inflation, but Minfin’s decision to pay an additional premium on the primary market also pushes the curve higher.As GKEM Analytica wrote previously, the government may avoid borrowing in the beginning of the year or at least raise a moderate amount without shifting the curve higher. Last year, the Finance Ministry borrowed a significant amount of money in advance and may use these funds to finance the budget deficit this year. Besides that, the budget deficit is likely to be lower than expected, which means that the announced borrowing program may be excessive. There is no need for the Finance Ministry to pursue an aggressive borrowing strategy under current conditions, as it will thus achieve little in terms of the amount of placement but may cause the cost of borrowing to increase further.Evgeny GavrilenkovAlexander Kudrin