With an end-of-the-year campaign of placing massive volumes of floating-coupon bonds at high interest, Russia's Finance Ministry managed to comply with its 2024 OFZ federal ruble bonds borrowing plans.
The total nominal value of OFZs placed for 2024 stood at RUB4.37 trillion ($42bn). For 2025 the OFZ borrowing plan has been raised to RUB4.8 trillion, the highest since 2020.
Notably, on the last auction of 2024 on December 25, the ministry placed RUB55bn of fixed-income OFZs series 26247 maturing in May 2030 at 16.44% annual yield and a total demand of RUB111bn.
Renaissance Capital commented that the issue “has a relatively high interest rate risk (due to its duration of 6.3 years), which, combined with low liquidity (only 15% of the series volume is traded on the stock exchange), makes it less attractive than the second issue”.
In the second issue FinMin placed OFZ-PD series 26242 bonds (maturing in August 2029) worth RUB41.44bn at a weighted average price of 78.25% of par and yield to maturity of 16.35% annually.
High demand, especially for fixed-income OFZs, is attributed to the Central Bank of Russia (CBR) surprise dovish move of keeping the interest rate at 21% on December 20.
The main beneficiaries of lower interest rates will be OFZs with duration of 3-4 years, RenCap analysts believe, arguing that the higher the duration, the lower the attractiveness under current circumstances. This is also due to the Ministry of Finance's plans to place as many long OFZs with fixed coupons as possible, as well as risks of other unexpected actions of the CBR.
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