Page 114 - RusRPTJun21

auctions Russian banks were buying up to 85% of the OFZ issues. (See the banking section.) However, as tensions eased in May bankers report that international investors have returned to the market.
International investors have returned to Russian Ministry of Finance ruble-denominated OFZ treasury bills market in mid-May after selling off some $2bn worth of the fixed income instruments earlier this year.
Interest in Russia’s profitable ruble bonds was depressed by fears that the US would use the “nuclear option” and ban international investors from owning or trading the bonds entirely.
On top of geopolitical tensions, things got worse after Russia built up its military forces on Ukraine’s border in April and volatility in the Turkish market had a spill over effect on the Russian market.
The sanctions that were released on April 15 did indeed target the OFZ for the first time, but they only banned US investors from particating directly in the MinFin weekly auctions and so have no practical impact on the US ability to participate in the market and no restriction on holding the bonds.
Following the withdrawal of Russian forces from the Ukrainian borderlands and with the prospect of a Biden-Putin summit on the cards to sooth frayed geopolitical tensions bond investors have been returning to the OFZ market to load up on more. In the last two weeks investors have bought RUB45bn ($500mn) worth of OFZs.
According to ING analysts, based on data from the National Settlement Depository (NSD), over the past week, foreign investors increased their investments in the OFZ market by RUB15bn ($200mn at an average exchange rate of RUB75/$).
“70% of the inflow of foreign investment fell on five-six-year OFZs, the rest fell on ten-year securities and ultra-short OFZs with maturity on June 9, that is, until the next meeting of the Central Bank,” said Dmitry Dolgin, chief economist at ING.
Foreign investors in the Russian market are attracted by the level of real rates of return (about 1%), which, according to Dolgin, is one of the highest in the world, behind only Turkey (6%) and Kazakhstan (3%).
“Analogues in Eastern Europe have zero or negative rates (up to -3% in Hungary), in Asia and Latin America, real rates are about zero,” Dmitry Dolgin, chief economist, Russia, at ING said. “With expectations of an average inflation rate in the long term of about 4% and a key rate of 5.5%, long OFZs with a current yield of 6.85-7.20% per annum look interesting to buy.”
114 RUSSIA Country Report June 2021 www.intellinews.com