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Local sovereign debt: weak start; flat ending


Yesterday, the OFZ market started out with a sell off: longer dated bonds opened almost 1.0pp lower, while the belly was marked down 0.3-0.5pp. However, in the middle of the session the situation turned a corner, so by the end of the day the belly had fully recovered, while the longest end still closed in the red. In particular, RFLB 28 (YTM 11.04%) lost near 0.5pp. As a result, the curve steepened as yields on the long end picked up 7-9bp, while the belly was unchanged. In particular, the 2s10s spread moved up to 18bp (+14bp) and 5s10s printed at -8bp (up 10bp on the day).

Today, the Ministry of Finance is going to announce the 3Q15 borrowing plan. We highlight that in terms of redemptions, next quarter is to be the most challenging: almost all the maturities left in 2015 fall in the next three months. Specifically, MinFin has to pay down RUB 182bn in OFZs and RUB 30bn in non-tradable instruments. Nevertheless, we think that it will proceed with a RUB 200-250bn quarterly issuance target, since total borrowing plans for the whole year are fairly modest. To recap, in total the government is seeking to borrow RUB 180bn net in the local market this year.

Meanwhile, MinFin has announced the syndicate for the upcoming debut issue of inflation protected notes. In addition, it revealed the issuance documentation. For all practical purposes, the structure is identical to US TIPS: a floor on face value (i.e. it cannot be below 1,000) and a three-month lag for inflation reference index.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts


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