OFZ Auction Results - September 3, 2020

The Finance Ministry yesterday placed R188 bln in the 6y OFZ 29014 (March 2026) - its largest ever OFZ placement in a single auction. The premium was also small, at just 3 bps, versus 10 bps last week at a similar auction. Demand for this sort of instrument typically comes from local banks, and yesterday's auction appeared to be no exception. The large volume means that it cannot have been purely attributable to Russian asset managers, and the ruble's behavior in the first half of the day also indicated a lack of demand among nonresidents. We had expected demand from local banks to revive this month, but we did not expect it to return in such large volumes at the first auction of the autumn. Should demand for nominal OFZs continue to slide amid rising geopolitical risks, floaters should remain in the demand, in our view. Elevated budget spending, which appears only set to grow through to the year-end, should support banks' demand for liquid assets, and floaters carry minimal interest rate risk.The Finance Ministry placed R28 bln of the R34 bln offered in the 10y OFZ 26228 (April 2030) at a minimal yield premium of 2 bps to the secondary market. After the auction results were announced and before yesterday evening's news about Alexei Navalny, the OFZ 26228 added 5 bps in yield, as the placement indicated that demand for such long paper still remains rather weak. Given this and the rise in geopolitical risks, we would not expect the Finance Ministry to offer issues longer than 7y in coming weeks.