On the background of deteriorating market conditions in the debt market, the Finance Ministry has adjusted its approach to the placement of government bonds. The increase in borrowings and strengthen the sanctions rhetoric in the USA has led to higher yields in the debt market. At the upcoming auction the Ministry is going to offer a new issue OFZ bonds with a floating coupon. Such securities are in demand mainly from local investors, but they require the Ministry of Finance the award yield to the secondary market.At the next auction, which will take place on Wednesday, the Ministry of Finance will offer only one issue of OFZ maturing in March 2026 floating rate coupon (so called floater). The issue was registered in the spring of this year, and its volume is 450 billion rubles In the previous placement Agency, as a rule, placed two and often three of OFZ. Depending on the situation, the investors were offered government bonds with fixed or floating coupon or a coupon tied to inflation. Thus, satisfied the needs of different groups of investors.In the first half of the Ministry of Finance placed OFZ at auction at $ 1.6 trillion, exceeding the original plans (1.2 trillion rubles). Initially, the gross borrowing of the Ministry of Finance on the internal market for 2020 was planned at the level of 2.3 trillion rubles At the end of last week, Deputy Finance Minister Vladimir Kolychev said the Department is focused on increasing the borrowing program this year to 5 trillion rubles In the third quarter to be sold at auction on OFZ 1 trillion Increase in borrowing, which is necessary in order to maintain budget costs during this difficult period, will not lead to serious increase in hostagecenter the upcoming placement, the Finance Ministry said only that “this decision was made after analyzing current market”, without disclosing details of the analysis. However, as noted by the participants in the debt market during the previous two weeks, the auctions on placement of Federal loan bonds with a permanent coupon was held against the backdrop of weak interest from investors. As noted by chief analyst debt markets Bq Region Alexander Ermak, from mid-June OFZ yields increased on average in the market by 35 basis points (b. p.), and medium – and long-term issues within 43-53 b. p. According to Reuters, this week the yield on ten-year government bond reached 6.1% per annum, and twenty years was close to 6.4% per annum. According to Mr. Ermak, among the main reasons for the negative dynamics was the intention of the Ministry of Finance to increase the issue of OFZs, increased anti-Russian sanctions rhetoric in the United States and the return of growth of coronavirus in different countries. The chief analyst of PSB Dmitry Monastyrshin also links the reduction of prices of rouble bonds growth of Sanczynnych risks and plans of the Ministry of Finance to significantly increase domestic debt.According to head of analytical Department of Bank “Zenith” Vladimir Evstifeev, “the choice in favor of the floater due to a higher interest in such securities at the previous auction.” Indeed, the demand a week ago, on bonds with floating coupon exceeded 133 billion roubles, reminds Mr. Ermak, and only the tough stance of the Finance Ministry, which cut off the too-aggressive application have led to the deployment of the small volume of such releases.As pointed out by Dmitry Monastyrshin, in General, at the latest auctions are dominated by demand local players. In particular, according to the National settlement Depository (NSD), in June the share of non-residents in OFZ bonds dropped by 1 percentage point to 29.6%. The proposed paper, according to Mr. Evstifeeva have “extra protection in case of sharp deterioration of the situation on the Russian financial market”. And floater traditionally not of interest to foreign investors, their target group — local players, experts say. However, based on the experience of the previous auction, we can conclude that to place a large amount is possible only with a premium yield on the secondary market. As pointed out by Dmitry Monastyrshin, the Ministry and investors “until you agree on price.” A large volume of applications at a price below par at the last auction “is not consistent with the tactics of the Ministry of Finance to minimize the cost of raising funds,” he said.Dmitry Ladygin
