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VTB Capital: Strong Start to the Year

January 09, 2017 | Cbonds

Over the last week, OFZs tightened 10-15bp on the long end and up to 35bp on the belly, in yield terms, amid an almost illiquid market. Specifically, RFLB 19 6.80 (YTM 7.92%) gained 1.0pp, price-wise, according to the MICEX's quotes, so some particular mid-term bonds plunged below the 8.0% mark. As we have noted before, the slope of the sovereign curve is likely to increase this year due to the burden of higher domestic borrowing being skewed toward long end notes and the CBR gradually easing its policy stance (cutting the key rate 1.5pp as of YE17, in our base case scenario). The Ministry of Finance has announced its borrowing plan for 1Q17. Total issuance is to amount to RUB 400bn, a significant increase on the RUB 270bn in 4Q16 and RUB 240bn in 3Q16. The budget law assumes RUB 1.05tn of net domestic issuance for 2017, which is equivalent to RUB 1.6tn of gross supply, according to our estimates. Therefore, the current pace is consistent with the uniform quarterly distribution of gross domestic borrowings during the year. There is only RUB 35bn of maturities in 1Q17. Concerning the maturity profile, the focus is to be on the belly segment (RUB 210bn), while long and front end notes are to account for RUB 90bn and RUB 100bn, respectively. However, we think that, among mid-term issues, the MinFin will give preference to floaters, while doing more bullets in the long end.

Company: Russia

Full company nameMinistry of Finance of the Russian Federation
Country of riskRussia
Country of registrationRussia

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