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Local sovereign debt: good auction as bonds remained better bid


Yesterday, MinFin sold RUB 13bn of RUONIA-linked bonds maturing in 2020. Total demand was RUB 15.3bn and the average price printed at 93.07 vs. 93.04 last week. Hence, even though bullet bonds saw visible pressure last week, demand for RUONIA-linked bonds remains strong. We concur, because, in our view, these issues are undervalued: in particular, we estimate the fair price for 2020 notes is about 2-3pp higher. RUONIA-linkers remain one of our top picks in the market.

Bullet OFZs continued trading on a stronger footing thanks to local support. At the end of the day, yields on the long end declined near 10bp, and the belly moved down around 25-30bp. Price wise, RFLB 28 (YTM 12.70%) gained near 0.5-0.7pp and RFLB 19 6.80 (YTM 13.69%) moved up around 1.1-1.2pp. Hence, the curve steepened further with the 2s10s spread up 15bp to -45bp. However, in our view, mid-term bonds look the most appealing, as 5s10s stands at -77bp, which looks excessive in the current monetary cycle.

Maxim Korovin, Tatiana Zueva  
VTB Capital analysts


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