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Local sovereign debt: repairing the squeeze


Yesterday, the Ministry of Finance made a surprise announcement that it would be placing RUB 5.0bn of RFLB 16 6.0 today. However, the bond is very much short squeezed, so we think that one or more market participants asked the Ministry to place exactly this series in order to repair liquidity. Hence, we think for the secondary market in general the news is neutral.

More importantly, Finance Minister Anton Siluanov said that in 2015 the government would increase the offering of bonds with a shorter duration. This is a marked change to MinFin’s borrowing strategy, which was an extension of the previous average duration. In our view, MinFin is acting rationally, giving more focus on the front end, but it also means higher new supply next year. The latter would be negative for the market, in our view. Nevertheless, the OFZ curve tightened 4-7bp yesterday following RUB’s appreciation.

Maxim Korovin, Tatyana Zueva
VTB Capital analyst


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