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Local sovereign debt: new supply, finally

 
24.09.2014

Yesterday, MinFin announced that today it would be selling RUB 10bn of RFLB 23 7.0. Last time MinFin held an auction was 16 July. The market’s reaction to the news was predictably negative. After the headlines appeared, prices on the long end slipped near 25-30bp. At the same time, the session as a whole was positive. In particular, RFLB 28 (YTM 9.48%) gained 0.9pp in the end, while the issue about to be offered, RFLB 23 (YTM 9.42%), surged 45bp in price terms. The rest of the curve also gained in price. Overall, yield wise, the OFZ curve tightened

10-13bp on the belly and long end; the front end moved down 7-9bp. Perhaps MinFin has finally identified a solid bid for the bonds, which would be the main reason not to cancel the auction. We expect decent results, given how long the new-issuance pause has been. At the same time, for the secondary market, the decision carries certain risks, since RUB 10bn weekly is not enough for MinFin to execute its borrowing plan for 2014: it needs to place RUB 15-17bn weekly. The main intrigue, of course, is whether MinFin will offer a premium to secondary market valuations. We believe that the ministry will not, given how cautious it has been was in the last two months.

Maxim Korovin, Tatiana Zueva
VTB Capital analyst

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