Yesterday, the OFZ market continued trading in the red, with the curve up 15-20bp on the long end and 30-40bp in the belly and front end. Hence, at the end of the day, RFLB 28 (YTM 12.76%) lost 0.8pp in price and mid-term bonds saw price slippage of 1.0-1.2pp. Foreign accounts remained the main sellers in the wake of Moody’s rating action. Historical examples show that a country’s debt underperformance after slipping out of the investment grade family could last a couple of months, but in the end, the negative effect fades away and the country catches up with the broad index. We do not want to speculate about the size of the potential unwind of foreign positions in OFZs. This puzzle has too many moving parts, in our view, while, given the relatively low liquidity of the OFZ market, even a comparably modest offer could move it visibly. However, at some point we think the local bid will engage, providing some support.
The Ministry of Finance is offering RUB 10bn of RUONIA-linked bonds maturing in 2020. To recap, last week the issue was sold at an average price of 93.59, but the OFZ curve moved up 140-150bp on a five-year tenor.