OFZ: Supply is evaporating

RUSSIA ECONOMICS - Report 02 Nov 2020 by Evgeny Gavrilenkov and Alexander Kudrin

October was the most successful month ever for the Finance Ministry in terms of OFZ issuance – it raised R1.5 trln. The main buyers were local commercial banks, which were offered floating-rate bonds with about a 50-bp premium to RUONIA. As a result, the government came very close to its annual borrowing target, so it will likely cut supply in November and switch to placement of fixed-rate paper. In this case, the recently placed floating-rate paper may outperform the market as the premium paid by the issuer on the primary market will be absorbed on the secondary market. Besides that, the absence of excessive supply may lead to spread contraction between the long and short ends of the curve.

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