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Foreign OFZ Holdings <19% for First Time in 6-Years

RUSSIA
  • Foreign holdings of Russian OFZ bonds dip below 19% at the end of March for the first time in 6-years – driven by geopolitical risks, a weaker RUB, end of quarter flows and continuing high placements.
  • Outflows hit more than RUB 120bn ($1.6bn) in March - the biggest monthly sell-off since April 2020, taking the overall share of foreign holdings down to 19.7%
  • Likely reflects concerns over possible US sanction on OFZs. However, the CBR is relatively well positioned to manage the fallout beyond a knee-jerk sell-off in RUB assets, which are already heavily undervalued.
  • Interestingly, Russia's external debt position has improved significantly with USD-denominated debt representing only 50% of total (~30% of GDP and low by EM standards).
  • Additionally, with $586bn in total reserves (incl gold), the CBR has extensive ammunition to impact the currency as it has done in the past.
  • In 2018 the CBR suspended its USD250m purchases a day and in March 2020 implemented $180m/day sales to stabilise the currency in line with the Fiscal Rule – and has said recently it would provide liquidity in OFZ markets if severe dislocations came about.
  • Local economist says A total ban on transactions involving Russian foreign debt will only result in serious losses for Western financial institutions following the sell-out.
  • Russian authorities will restructure their liabilities — making considerable savings on debt servicing. Therefore, by dealing a blow against Russian sovereign debt Western politicians will not inflict much damage to Russia's finances.
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market News
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market News

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