April 3, 2018 / 3:15 PM / in a year

Russia to offer 20 bln roubles of inflation-linked OFZ bonds

MOSCOW, April 3 (Reuters) - Russia will offer 20.036 billion roubles ($347.94 million) worth of new 10-year inflation-linked OFZ treasury bonds at an auction on Wednesday, the finance ministry said on Tuesday.

Russian treasury bonds were in strong demand among local and global buyers over the past few years thanks to lucrative yields and a recent upgrade to Russia’s sovereign debt rating.

Given that inflation-linked bonds are relatively new on the Russian market, buyers will watch for their pricing, or a discount that the ministry is expected to offer, analysts said.

Rosbank, a subsidiary of Societe Generale, said in a note that a “fair” price for the new 10-year paper was seen at around 96 percent of their nominal price.

“As far as we understand, there’s no real market consensus on how to approach and evaluate Russian local sovereign debt beyond the fixed-rate OFZ space,” Rosbank said.

Among likely buyers of the OFZ bonds maturing in 2028 could be Russian pension funds, who could snap up the paper at almost any price, as well as market investors who will be chasing for discounts, Rosbank said.

Russia’s annual inflation hovers at an all-time low of 2.2 percent and is expected to pick up towards the central bank’s target of 4 percent later this year.

The central bank, which recently had to fight double-digit inflation, is now on track to trim its key rate further this year from the current level of 7.25 percent.

The rate-cutting cycle pressures bond yields but, inversely, pushes their prices higher, making buying into OFZ bonds a strategy aimed at bond price growth.

$1 = 57.5850 roubles Reporting by Polina Nikolskaya and Andrey Ostroukh Writing by Andrey Ostroukh Editing by Alexandra Hudson

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