VTB Capital: new borrowing season

January 10, 2017 - Cbonds

 

The first trading session of the new year was pretty slow in terms of trading flows (MICEX turnover printed a modest RUB 5.0bn), but more active in terms of price action as the market was catching up with last week’s move observed amid rare MICEX deals. So, OFZs were marked 15-20bp tighter across the curve compared with last year’s closing levels.

The Ministry of Finance is set to borrow RUB 400bn on the domestic market in 1Q17. According to the official schedule, 11 auctions are planned for the period. Hence, assuming an equal distribution throughout the quarter, MinFin could place around RUB 36.5bn each time. Excluding the last auction (on New Year’s Eve), the average borrowing for the three December placements was RUB 41.0bn (already higher than the target for this quarter).

Today we expect the regulator to announce two auctions for a total of RUB 40bn. The first tap is likely to be the mid-term floater RFLB 22 in order to improve the liquidity of the new bond, with the other being long bullet RFLB 31 which, at a current yield of 8.36%, looks attractive.

According to MinFin’s plan, the largest chunk of the new supply in 1Q17 (about 52%) is to come in mid-term issues and it looks like floaters are in favour. However, the situation for the ministry is rather ambiguous. On the one hand, the belly segment (and especially RUONIA-linked bonds) has recently seen the greatest demand on the back of positive carry and expectations that the CBR might postpone its next cut decision further into the second half of the year. On the other hand, focusing on the belly segment, MinFin by its own hand creates a skewed profile of domestic debt, which is already dominated by short and medium term obligations (about 72% of total debt).
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