Russian MinFin aims to reduce share of floating rate OFZ bonds to 30%, but will keep issuing them - minister

MOSCOW. March 5 (Interfax) - Russia's Finance Ministry will try to reduce the share of floating-rate OFZ federal bonds to about 30% of the domestic government debt in the medium term, Deputy Finance Minister Vladimir Kolychev told reporters.

Having fulfilled last year's borrowing program with a huge issue of floaters in December, the ministry has not placed any such bonds since the start of this year, only offering the market bonds with a fixed rate.

"In general, floaters remain in our back pocket, in our arsenal. This is a good instrument that, when there is instability on the market, allows market participants to not accumulate interest risk, on one hand, and us to fulfill the borrowing program, on the other. But we also understand that the share of such instruments in the already issued government debt is fairly large and, naturally, carries interest risks for the budget. Our target parameters for the share of such instruments is in the range of 20-30%, but now we're closer to 50%, 45% plus or minus. Therefore, in the medium term we will arrive at something around 30%," Kolychev said.

This presumes that the ministry will primarily issue fixed rate instruments, but in periods of higher volatility it will continue to offer floaters, he said.

"In any case, the liquidity of this segment of the market must be maintained at an acceptable level, so one way or another there will be some background placement anyways," Kolychev said when asked about the prospects of the Finance Ministry offering the market floaters before the end of this year.

The Finance Ministry placed 4.37 trillion rubles worth of OFZ bonds by face value in 2024, raising 4.002 trillion rubles (proceeds from sale at market price), slightly more than the planned 3.921 trillion rubles. About 54% of all the OFZ issued last year were placed in the fourth quarter, when the ministry sold 2.361 trillion rubles worth of bonds at face value, raising 2.166 trillion rubles.

Most of the funds were raised by two issues of a new type of floating rate bond. Both issues, each with face value of 1 trillion rubles, were registered by the Finance Ministry a few days before their respective primary auctions. The first was completely sold at an auction on December 4 and the second was completely placed at an auction on December 11. The ministry fulfilled 83.3% of its quarterly borrowing plan with these two bond issues alone.

"In December we placed a lot [of floaters]. Of course, we will try to place more evenly. Neither the market nor we need stress, such large placements, but last year there was a special situation, where for an extended period of time the market was careful, appetites were small, both for fixed rate and for floaters. Basically, we whetted this appetite with this new issue," Kolychev said.

The new type of floater uses the term version of the RUONIA in the calculation of the coupon. While the old coupon was calculated as the average arithmetic value over three months, the new one takes into account capitalization over this period. This way of calculating the rate works better like a money market instrument and is in line with investors' wishes, the ministry said.

At the start of this year the Finance Ministry switched to a new tactic in placing "classic" bonds, registering additional issues of OFZ already in circulation and offering them at auctions. This is a response to the market's wishes, Kolychev said, but the ministry will not give up the practice of registering and placing new issues.

"Both one and the other [are planned]. We discussed this with the market for a long time. This was, in principle, the wish of the market, a fairly old one, so to speak. The market asked us to do this all of last year, because liquidity in old bonds has decreased," Kolychev said.