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Russia sells largest OFZ bonds chunk since before U.S. sanctions

07/28/2021 | 11:49am EDT

MOSCOW, July 28 (Reuters) - The Russian finance ministry on Wednesday sold the largest amount of its OFZ treasury bonds at weekly auctions since April 14, the eve of the day when the United States announced new sanctions against Russia.

Russia's borrowing success comes after the inflow of foreigners' money into OFZ bonds last week increased at its fastest pace so far this year, amid expectations that a sharp rate hike by the central bank could hasten the end of the monetary tightening cycle.

The country's central bank on Friday raised it key rate by 100 basis points to 6.5% to curb stubbornly high inflation and indicated that further rate increases were still possible.

On Wednesday, the finance ministry sold 70.54 billion roubles ($957 million) worth of OFZ bonds maturing in 2029 and 35.99 billion roubles in bonds due in 2036 .

This was the largest daily placement since mid-April when the United States unveiled new sanctions that came into effect in mid-June and barred its banks from buying rouble-denominated state bonds, such as OFZs, directly from Russia.

Demand for OFZs at two auctions combined reached 158.6 billion roubles, its highest since June.

OFZ yields, which move in the opposite direction to prices, declined earlier this week "supported by fresh purchases by nonresidents and continued interest from locals," said Sberbank CIB.

Even though foreigners stepped up buying long-term OFZs recently, volumes roughly halved from last year, said Arnak Grigoryan, head of fixed income and derivatives at Citi in Moscow.

"Even though the trading volumes declined, the would-be buyers of OFZs remained more or less the same: Europe, Asia and the United States," Grigoryan said.

After the 100-basis-point hike to 6.5%, yields on 10-year OFZ treasury bonds fell to 6.89% on Wednesday, their lowest since March, from levels of up to 7.27% seen a week ago .

"We think that many market participants expect the significant tightening of CBR monetary policy to help push inflation back down to the CBR's target quickly, meaning that further rate hikes may not be necessary," Sberbank CIB said. ($1 = 73.7030 roubles) (Reporting by Andrey Ostroukh; additional reporting by Vladimir Abramov; Editing by Steve Orlofsky)

© Reuters 2021
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