OFZ: Going below 6%

RUSSIA ECONOMICS - Report 21 May 2020 by Evgeny Gavrilenkov and Alexander Kudrin

Last Friday the yield of the longest OFZ dropped below 6% for the first time ever. Strong demand from both domestic and international investors not only pushed the curve down but also allowed the Finance Ministry to set a new single day placement record this Wednesday — R169 bln. Market participants are anticipating further rate cuts from the CBR, international investors play this bet with the help of ruble sovereigns. The expected launch of the long-term REPO facility by the CBR at the end of June will offer an attractive carry trade opportunity for local commercial banks, which should support their demand for OFZ. As a result, the Finance Ministry feels now it is a good time to increase the amount of placements and is likely to use this chance to the maximum. This effort may slow down yield compression on the secondary market but the trend is likely to remain.

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