OREANDA-NEWS. April 20, 2012. The Ministry of Finance has placed the OFZ 26208 issue (nearly 70% of the offer amount, or RUB6.8bn) with a maturity date of 27 Dec 2019, reported the press-centre of ATON.

Demand totalled RUB13.6bn. The weighted average yield of 7.78% matched the high end of guidance (7.73-7.78%) at a cut-off price of 99.26.

Observations and Recommendations
Over-subscription may suggest that some investors planned to test MinFin’s readiness to provide a premium to the secondary market. However, given the current dynamics of budget execution, MinFin doesn’t need to pursue an aggressive borrowing policy. As a result, only half of the bids were satisfied and the bond was placed at market value: yesterday the bond closed at 99.3, implying a yield of 7.78%. On our estimates, there is no upside potential in OFZ 26208 given the current form of the sovereign yield curve. Additionally, the bond’s liquidity isn’t high: nominal volume stands at RUB18bn (including today’s placement), which could increase price volatility if the market environment deteriorates. Finally, a 7.8 year duration exposes investors to significant market risk: last week the bond was the main decliner, losing 75 bpts. In our view, only OFZ 26207 offers upside potential (about 30 bpts), but prospects for its realisation are doubtful because of this issue’s low liquidity, long duration (8.8 years) and considerable market uncertainty.