Primary Market
MinFin officially confirmed that on Wednesday (22 Feb) a new issue of OFZ 26207 will be placed instead of the planned OFZ 26205. The new bond will be the longest of the liquid OFZs with 15 years to maturity (maturity date: 3 Feb 2027). The coupon is set at 8.15% with a period of 182 days. The modified duration is 8.2 years and the yield to maturity is 8.32% at price 100. The planned volume of OFZ 26207 is RUB10bn.
Observations and Recommendations
We believe the results of the OFZ 26207 auction will be a litmus test for investor sentiment. A favourable auction would confirm that good demand for duration remains, despite many investors already having significant respective positions. If successful, we do not expect that demand for the long OFZ 26207 will be fully satisfied and that the unsatisfied demand will spill over into shorter papers such as OFZ 26205, 26204, and 26206. Given the current form of the sovereign yield curve we see the new OFZ 26207's “fair” yield at 8.20%. The offered yield of 8.32% seems rather attractive to us, though the auction results will depend on the announced yield guidance. We expect the OFZ 26207 auction to be successful, which should drive demand for other long OFZs, especially OFZ 26205.
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