Russian sovereign debt: The primary market may reopen in autumn

RUSSIA ECONOMICS - Report 19 Aug 2022 by Evgeny Gavrilenkov and Alexander Kudrin

The fiscal situation in Russia deteriorated significantly in the middle of the year, and we expect the nation’s budget deficit to reach R1.2-1.5 trln for FY22. Despite the fact that the main source of funding the deficit is the National Wealth Fund, we don’t rule out that the Finance Ministry may try to resume primary OFZ placements in September. All other things being equal, it may raise R400-500 bln by year-end in the open market. Demand for government bonds may find support due to the lack of alternatives for investments for local market participants. The potential competition from the side of Russian paper “migrating” from Euroclear/Clearstream to domestic custody doesn’t seem to be a problem as authorities have already introduced a six-month lock-up period for this paper.

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