Yields on Russian OFZ sovereign treasury bills fall to 9-month lows as foreign demand rises

Yields on Russian OFZ sovereign treasury bills fall to 9-month lows as foreign demand rises
Yields on Russia's OFZ T-bills have fallen to below 8% from highs of over 9% during last year's sell off.
By Ben Aris in Berlin May 23, 2019

Russian Ministry of Finance ruble-denominated OFZ treasury bills were trading near their highest levels in nearly two years in the first weeks of May, the Central Bank of Russia (CBR) said on May 23.

Yields of 10-year benchmark OFZ bonds have fallen to under 8% after touching 9% last autumn during the height of a sell off, and were 7.98% as of May 22  their lowest level since the 7.94% recorded in early August 2018. In real terms, OFZ yields are now around 3%.

Ruble-denominated OFZ bonds rallied in May on the back of strong foreign demand, supported by expectations of a rate cut by the Russian central bank in the near future following very weak GDP growth figures in the first quarter of this year as well as rising oil prices.

The ministry offered OFZ bonds maturing in 2024 and papers maturing in 2030, selling $1.14bn worth of OFZ bonds on May 22, reports Russia Business Today.

Demand for OFZ bonds is also seen as a barometer for investment sentiment on the international capital market for Russia and that has been rising steadily all year as sanctions fears fade and US interest rate hikes stop, making investors “risk on” once again.

Inflows into the OFZ market are becoming increasingly important as one of the main sources of inbound foreign exchange that is increasingly determining the ruble dollar exchange rate, as ING wrote in a recent commentary.

 

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