The Ministry of Finance placed in 2016 OFZ at 500 billion rubles.

The total volume of placed five – and six-year OFZ bonds at two auctions the Ministry of Finance on Wednesday, 28th December, amounted to 18 billion rubles, according to data from the Moscow exchange.

At the first auction was placed five-year bonds for 10 billion rubles, with demand 3.3 times oversubscribed. The average yield on these bonds amounted to 8.3% per annum. According to the Moscow stock exchange during the placement was concluded two transactions with a volume of RUB 5 billion According to the analyst of Raiffeisenbank Denis Breaking, judging by the fact that the auction was put up two bids at the same price and the same size the buyer OFZ could be a single large Bank. “On the market are similar issues are traded with a yield of 8.4% per annum,” he said.

On the second auction the Ministry offered government securities with varying coupon and maturing in November 2022 and sold them for a total of 8 billion rubles the demand of investors was almost three times higher and amounted to 22,65 billion rubles, the Average yield on these bonds amounted to 10.48 percent per annum.

“The increased demand was driven by banks, which at the end of the year, you must increase the portfolio of marketable securities in connection with toughening of requirements to liquidity from the Central Bank”, — says the analyst of Sberbank CIB Nikolai Minko. He noted that after the announcement of placement results yield comparable maturity government bond corrected, falling to 1-5 b.p.

Auctions of the Ministry of Finance on placement of OFZ on Wednesday became the last in 2016. As reported by the Agency, based on two auctions the programme of state internal borrowings was almost fully fulfilled: the volume of net borrowing totaled 500 billion rubles.

The Finance Ministry plans to borrow on the domestic market twice that amount, 1 trillion According to the Director of the debt Department of the Ministry of Finance Konstantin Vyshkovsky, the supply of OFZ at the auction will rise from the middle 20 billion to 30-40 billion rubles. in day. However, as he stated in an interview with Bloomberg, thus the authorities expect to reduce the cost of the Reserve Fund to cover the budget deficit, replacing them with internal loans. On December 1, 2016, according to the Finance Ministry, the reserve Fund amounted to 2.03 trillion rubles, down YTD 1.64 trillion. Previously, a number of economists and officials expressed the opinion that in 2017, the Reserve Fund could be fully exhausted.

According to Vyshkovsky, by 2019, the Ministry of Finance plans to Finance up to 90% of the budget deficit through domestic and external borrowing. Now at the expense of OFZ and Eurobonds the state budget covers only 20% of the deficit. While next year the Ministry hopes to take “without a sharp increase in the cost of borrowing”. To help accommodate the planned trillion of bonds the Ministry of Finance, according to the official, can banks, which in the context of growing surplus liquidity of available funds for investment in government securities.

“Spending reserve funds will actually increase the banks’ demand for OFZs, however, some competition to the Ministry of Finance in next year can amount to corporate borrowers”, — says Nikolay Minko. According to him, the support of the Ministry of Finance has traditionally provided and foreigners, whose share on November 1, 2016 was $ 26.8% against 21.5% at the beginning of the year. “The share of nonresidents in government bonds will decline,” — says the analyst.

The Finance Ministry, by contrast, is expected to maintain strong demand of non-residents on the OFZ market in the next year.

According to the Director of analytical Department IK “Region” Valery Weisberg, plans of the Ministry of Finance may be under threat due to the rate hike by the Federal reserve in 2017. “It will reduce the interest of non-residents to the Russian papers, so the Ministry of Finance will have to count on demand from domestic investors — pension funds and individuals,” he says.

The expert recalled that next year in the NPF will be about 364 billion rubles at the expense of pension savings, part of which will go to the purchase of OFZ. “Some active citizens, because there is a likelihood that the yield of deposits in 2017 will continue to fall. The yield of government securities, according to market expectations, will remain at 8% per annum,” says Weisberg.

As for the banks, then, according to Valery Vaisberg, they may prefer OFZ Deposit auctions of the Bank of Russia or the Bank bonds. In September, the head of the Central Bank Elvira Nabiullina said that the regulator is willing to issue such bonds, the growth of surplus liquidity in the banking system.

“Right now, only 7% of banks’ assets invested in ruble-denominated bonds, large banks, this share can be more. There is no reason to believe that this share in the increasingly challenging banking regulation will grow. If there will be growth of banks ‘ assets, the plans of the Ministry of Finance on placement will be untenable,” adds Weisberg. In total, according to the Central Bank, on 1 November 2016, the share of banks ‘ investments in securities exceeded the 11.6% of assets.