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· Despite the issuance, the program has been fulfilled in general (RUB 5.2trln gross, RUB 5trln net). MinFin wants to test the market with an additional issuance of bullet bonds worth RUB 350bn in December via various tenors.
Outlook for 2021:
· The issuance plans for 2020 were unique due to the circumstances. Next year, MinFin plans to borrow RUB 3.7trln gross (RUB 2.7trln net). The issuance structure will likely be flexible (floaters/bullets/inflation-linked) as it has been this year. The main emphasis is likely to be on floaters and bullets, while the supply of inflation-linked OFZs is likely to remain limited.
· Russia entered the Eurobond market in 2020 for the first time since sanctions were levied against Russia in 2018, issuing EUR 2bn. Next year, MinFin expects to issue another $3bn in equivalent bonds.
· MinFin did not rule out additional sanctions, but it gave them a very low probability due to the high integration of the Russian sovereign market into the global financial system.
As Sova Capital noted recently, with no significant supply overhang, 2Y and 10Y zero-coupon OFZ yields could have upside potential from their current rates of 4.54% and 6.13% to 4.25% and 5.75% by YE20 thanks to greater fiscal spending (a third of the total in November-December) and the increased participation of non-residents. The testing volumes are unlikely to derail the market trends, as MinFin will aim to lower discounts in December. Going into next year, we see the 10Y-2Y spread narrowing to 125bps due to the pricing of the upcoming rate-hiking cycle that will start from 2022.
International interest in Russian Ministry of Finance ruble-denominated OFZ treasury bills remains strong. As a result of the economic downturn caused by the interest rate pandemic, Russia's general government surplus has turned into a deficit. This year's deficit is projected at around 4.5% of GDP, largely covered by government domestic borrowing.
In recent months, the Ministry of Finance has successfully issued significant amounts of ruble-denominated bonds. Demand for bonds has been strong, with Russian banks in particular being the buyers. Correspondingly, the share of foreign investors in the Russian government bond market has shrunk slightly during the year, reports Bank of Finland Institute for Economies in Transition (BOFIT).
At the end of October, a historically large 9-year floating-rate bond of
94 RUSSIA Country Report December 2020 www.intellinews.com
