FinMin is going to hold an auction of RUB 20bn worth of OFZ series 25081 5-year federal bonds on July 3. Fixed coupon rate for the issue is 6.2%. This makes a cautious return to the OFZ auctions as last week FinMin did not hold any auctions, making the third consecutive week that an OFZ auction is being called off due to low demand.  

The decline in demand in the past weeks could be attributed to inflation exceeding expectations in April and May (to 7.2% y/y and 7.4% y/y), and as a result the Central Bank of Russia holding back the anticipated cut in the main interest rates in May and June.

Previously, following a slump in Q1/13, throughout April and in the beginning of May the primary and the secondary OFZ market notably revived. Yields went down for short and long-term issues and amounts proposed and auctioned by FinMin increased. This was generally attributed to the inflation in March beating expectation of 7.2%-7.3% at 7%, the Central Bank of Russia taking a softer stance on monetary stimulus.

This week FinMin published the schedule of OFZ federal bonds auctions for Q3/13, according to which total amount of bonds to be proposed is RUB 270bn (USD 8.4bn). FinMin is going to propose RUB 40bn worth of 3-year and 5-year bonds, RUB 70bn worth of 7-year and 10-year bonds, RUB 30bn worth of 15-yeat bonds, and RUB 20bn worth of 20-year bonds. Notably, auctions with long-term maturities (10 years and more) account for RUB 120bn or 44% of total planned placements. While in Q1/13 share of issues with maturity of 10-15 years was 66.5%, in Q2/13 the announced “long” issues were be cut to 43.3% of total RUB 300bn OZF issues proposed in Q2/13.