Russia wants to borrow more, prepares new OFZ auction mechanism

March 29, 2019

By Darya Korsunskaya and Andrey Ostroukh

MOSCOW (Reuters) – Russia wants to borrow more in the second quarter this year, and it plans to implement a new bond-offering mechanism and take advantage of growing global demand for its debt, a senior ministry official said.

After months of uncertainty related to possible new U.S. sanctions on holdings of Russian debt, demand for OFZ treasury bonds soared this year. That’s led the finance ministry to rethink how it raises money for its budget needs.

The ministry has now scrapped offering limits at OFZ auctions after Moody’s rating agency in February lifted Russia’s sovereign rating, giving Russia an investment-grade rating by all three big international rating agencies.

The decision to stop setting offering limits at weekly auctions allowed the ministry to borrow more than planned, Konstantin Vyshkovsky, head of the state debt department at the Finance Ministry, told Reuters in an interview cleared for publication this week.

Russia has already borrowed more than 450 billion rubles ($6.90 billion) envisaged by the first-quarter plan, and “the target for the second quarter will certainly be higher,” Vyshkovsky said.

To raise more money, the ministry is now planning to alter the way it holds OFZ auctions on Wednesdays.

The ministry wants to give OFZ buyers one more chance to snap up the debt after the main session of the auction. Within 30 minutes after setting a cut-off price at the auction, the ministry will let OFZ buyers who placed bets close to that level purchase bonds at the cut-off price, Vyshkovsky said.


Rouble-denominated OFZ bonds enjoyed strong demand recently as interest grew in emerging markets. A stronger rouble and expectations of no further rate increases by the central bank also helped, Vyshkovsky said.

The absence of more U.S. rhetoric on sanctions against Moscow also supported OFZ bonds.

“Some non-residents decided to take advantage of it as there is an understanding that if the sanctions occur, they are likely to impact new debt only,” Vyshkovsky said. “Now we see a serious inflow of non-residents at the auctions.”

Non-residents accounted for up to a half of all buyers at OFZ auctions in mid-March, he said.

Foreigners’ share among OFZ holders rose to 25.9 percent as of March 1, its highest since early September 2018, central bank data showed. Their share has probably grown as the finance ministry raised record funds in OFZ bonds in March.

“Sanctions risks are the normal reality. In any case, the market got used to it,” Vyshkovsky said.


Vyshkovsky said the finance ministry will diversify its OFZ offering this year by presenting new two-year bonds with coupon payments pegged to money-market rates, so-called floaters.

“Floaters are a defensive tool for an investor, demand for which is rising … when the market is expecting interest rates to grow,” Vyshkovsky said. Investors now are interested in buying bonds with a fixed coupon instead.

Vyshkovsky also said that Russia was still planning to issue OFZ bonds denominated in Chinese yuan this year, without elaborating on a possible timing or volumes of the issue.

(Writing by Andrey Ostroukh, editing by Larry King)

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