Yesterday, OFZs opened under pressure after S&P’s decision to cut its rating for Russia the previous day. In the morning, RFLB 28 opened 1.25pp lower in price, while quotes on the belly declined 0.75pp. However, later bids emerged and toward the middle of the session, prices were already near Monday’s closing levels. In particular, belly was in greater demand: by the time the session closed, medium-term issues were trading 0.50-0.75pp in black, or around 20bp lower yield wise. Meanwhile, the longest bonds closed almost flat, meaning the curve continued steepening, with the 5s15s OFZ spread up 21bp to -136bp.
Today, MinFin is going to offer RUB 5.0bn of bonds (series 24018) maturing in December 2017, with a coupon rate linked to the RUONIA. The first interest payment, due on 1 July 2015, is known and set at 10.89%. The second and onward interest payments would equal the average RUONIA rate in the preceding six months plus a spread of 0.74pp. For example, the second coupon period starts on 1 July 2015 and ends on 30 December 2015, so the interest rate due would equate the average RUONIA rate between 29 December 2014 and 29 June 2015. As a benchmark, one can use the RUONIA OIS rates, which are available up to one-year. However, given that the first coupon is already known, while the bond is two-years long, certain arbitrary assumptions are still be needed to determine the fair price of the bond. Below we outline some scenario calculations of 24018 ‘fair’ price using zero-coupon discount factors on bullet OFZs.