Page 106 - RusRPTDec21

then +100 bp. remains the most likely scenario for the December meeting, ”the channel notes.
OFZ yield curve. The OFZ yield curve has been rising since September: OFZ 1Y – 7.98% (+83 bp), OFZ 2Y – 8.18% (+100 bp), OFZ 5Y – 8.15% (+89 bp), and OFZ 10Y – 8.04%( (+62 bp).
As a result of a more significant increase in the yields of short-term issues, the OFZ yield curve became inverted for the first time since 2017: the spread between the yields of 2Y and 10Y OFZs was about 20 bp.
The negative slope of the OFZ curve is mainly associated with expectations of the further tightening of monetary policy in the near term and its gradual easing over 1–1.5 year horizon as inflation returns to the 4% target.
The growth of the long segment of the OFZ curve was explained not only by the tightening of monetary policy, but also by external factors. Before the October increase of the Bank of Russia key rate, the main driver of growth in the yields of long-term OFZ issues was the rise in long-term rates in advanced economies amid expectations of an earlier tightening of their monetary policies.
In October, the yields of 2Y US Treasuries reached 0.5% (+22 bp), hitting their record high since March 2020, and those of 10Y bonds were up to 1.55% (+6 bp) – the record high since June 2021.
The curve was influenced by growing commodity prices (including oil, gas, coal, and metal prices), as well as elevated inflation expectations in the USA. The US debt market was also under pressure from the possible approval of J. Biden’s $2 trillion 8-year infrastructure plan instigating proinflationary risks.
Foreign investors reduced their OFZ holdings by RUB56bn by the end of the month. Before 22 October, their investments were mainly growing (by RUB18.6bn, from 1 through 21 October), and after the key rate increase they contracted by RUB74bn.
In October, the volume of OFZ placements decreased month-on-month by RUB182bn to RUB57bn. In response to the growing volatility of interest rates, the Russian Ministry of Finance reduced the volume of auctions.
Amid accelerated inflation, investors’ demand for OFZ-INs was higher than for standard OFZ-PDs. As in previous months, the main buyers of OFZs at auctions were Russia’s systemically important banks; as of the end of October, their share reached 57% vs 51% in September. The shares of other banks also increased, reaching 13% and 16%, respectively. At the same time, the share of foreign investors declined to 13% (vs 20% m/m).
106 RUSSIA Country Report December 2021 www.intellinews.com