Local government bonds: no surprise in the auction
Price action in RFLB was weak on Wednesday, with the yields in the belly being 6-9bp wider and long-term yields increasing 8bp. Market yields even declined 2-3bp from the intra-day highs in the evening. RFLB 18 7.5 closed at 6.86% and RFLB 27 at 8.07%. The Ministry of Finance failed to place any bonds due to the market conditions. This was not a surprise, given that there was no premium to the secondary market even at the time of announcement. However, the ‘high oil-weak USDRUB’ combination benefits the federal budget and if oil stays at USD 115/bbl, the need to borrow in the domestic market will be less acute. We highlight the widened spread between Russia 7.85 18 and RFLB 18 7.5 that offers a ‘clean’ (adjusted for bid-ask spreads) 10-15bp yield pick-up for a switch from a local bond into the RUB-denominated Eurobond.
Maxim Korovin, Anton Nikitin
VTB Capital analyst
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