Page 72 - RusRPTApr19

term.”
Bonds remains a lot more attractive than equities, but there has been a minor outflow over the last ten weeks, according to EPFR Global from the Russian dedicated bond funds, while the more general funds with Russian exposure saw outflows of circa $30mn in the last week compared with $60mn of outflows the week before.
President Vladimir Putin boasted during his state of the nation speech in February that Russia has enough in its forex reserves to cover its external debt dollar for dollar with cash for the first time ever making Russia’s domestic treasury bills, the so-called OFZ, a very solid bet.
Politics still plays a role and has driven up the cost of borrowing – but that only increases the appeal of Russian bonds. Yields on the OFZ fell to around 7% in 2018 as international bond investors went overweight Russian fixed income instruments and increased their share in the total outstanding debt to 34% in April. However, four rounds of sanctions and the threat that the new Defending American Security Against Kremlin Aggression Act (DASKAA) sanctions, due to be enacted this April, may target state debt began a sell off. Investors dumped RUB500bn ($7.6bn) worth of the bonds reducing their share to 24%. Last autumn Ministry of Finance had to cancel several weekly auction for the first time in years due to lack of demand, while yields crept up to touch 9%.
The end of the Fed’s easing has changed all that as bond traders go back to “risk on” in the “hunt for yield” that has marked much of bond investing over the last few years.
Russia's Ministry of Finance held an all-time record-high weekly OFZ treasury bond auctions on March 13, placing securities worth RUB94bn ($1.44bn) and beating the previous record sale of February 27 when RUB58bn of federal bonds were sold.
However, things are still not perfect. The ministry is offering shorter-term bonds and the yields are still high: the RUB34.7bn worth of three-year bonds placed this week had an 8% coupon and 10-year issue worth RUB56.7bn yielded 8.47%. Both issues were placed with almost no premium to market, white total demand for two auctions reached RUB144bn.
72 RUSSIA Country Report April 2019 www.intellinews.com