The latest US sanctions against Russia that limit the buying of Russian sovereign debt on the primary market are not only neutral for Russian sovereign debt market, but could actually support the domestic federal OFZ bonds, analysts told Reuters on August 5.

As reported by bne IntelliNews, the US has enacted a second round of sanctions against Russia linked to the poisoning of former Russian spy Sergei Skripal on British soil, which prohibit US banks from participating in the issuance of Russian sovereign debt on the primary market, but does not preclude them from buying the bonds on the secondary market.

The sanctions were largely seen as "symbolic" and were brushed off by the market, as both ruble and OFZ bonds strengthened on August 5.
Analysts believe that the new measures are not as drastic as in 2018 and will not lead to serious revision of Central Bank of Russia (CBR) policy, which is expected to have another, third, key interest rate cut by the end of 2019. However, the CBR could attempt to smooth the ruble volatility that has slightly increased in the past three months.

The limitation on issuance of primary dollar-denominated debt could make the Finance Ministry borrow the planned $3bn in 2020-2021 in other currencies, or carry some of the volume over to the domestic OFZ market, possibly increasing the volume by about 10%.

On the downside, this could tighten the competition between the state and corporate issuers on the domestic debt market. The worst-case scenario in which sanctions would target OFZ placements, which could substantially pressure the ruble, is seen as unlikely.

The sanctions that were introduced this month are seen as taking the pressure off the OFZ market, with the introduction of other stricter measures unlikely until the US Presidential elections in November 2020, although risks of escalation remain during the presidential race.

The total OFZ issuance for 2019 is budgeted at RUB2.28 trillion (net issuance of RUB1.57 trillion and refinancing worth RUB0.7 trillion). 

Since the beginning of 2019 the Finance Ministry has been holding record OFZ sales in its weekly auctions. So far in 2019 RUB1.46 trillion worth of OFZ were already sold, leaving another RUB780bn to be auctioned.

The Ministry of Finance is following a policy of issuing the OFZ bonds to as wide an investor base as possible as that will make them harder to sanction as too many international investors would be hurt by any sanctions imposed on the bonds.