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Russia’s major banks, foreigners help government raise funds amid coronavirus

By Andrey Ostroukh and Elena Fabrichnaya

MOSCOW (Reuters) – Russia enjoyed strong demand for its government bonds on Wednesday as central bank data showed that major Russian banks and foreign investors could help Moscow raise funds to finance its response to the coronavirus outbreak.

The finance ministry sold 97 billion roubles ($1.29 billion)worth of OFZ treasury bonds, with demand of nearly 146 billion roubles.

Demand for OFZ bonds, popular among foreign investors thanks to their lucrative yields, is seen as a gauge of attitude towards Russian assets at a time when Moscow plans to step up borrowing to fight the aftermath of the novel coronavirus.

Russia, on the brink of economic recession, reported another daily record rise in the number of cases, taking its nationwide total to 24,490 and the number of deaths to 198.

The fact that the finance ministry did not cancel auctions despite a sharp drop in the rouble, as it has done in the past, highlights Russia’s need for extra funds. On Wednesday alone, the ministry fulfilled one sixth of its quarterly borrowing plan.

“In current conditions, the finance ministry has every chance of hitting the quarterly target but, as today’s auctions showed, it requires a premium to the secondary market,” said Evgeniy Vertiporokh, an analyst at Rosbank.

Russia, in need of extra funds, has already scrapped 2020 borrowing limits of 2.3 trillion roubles in OFZs and up to $3 billion in Eurobonds.

The central bank said on Wednesday that major Russian banks supported the OFZ market in March at times when foreigners were ditching Russian papers.

Net purchases of OFZs by systemically important Russian banks reached 200.7 billion roubles in March, while foreigners’ share among OFZ holders slipped to 30.9% as of April 10, down from 34.1% in early March, the central bank said.

In early April, as the rouble pared losses, foreigners again became net buyers of OFZs, according to the central bank.

Demand for OFZs has been supported lately by expectations that the central bank may cut its key interest rate from 6% as soon as April 24.

A rate cut would drive OFZ yields lower and push their prices higher, suggesting investors may be interested in buying the bonds before such a rate move.

Yields on 10-year benchmark OFZs stabilised near 6.7% this month <RU10YT=RR>, levels they were at in October, having fallen from this year’s peak of 8.5% hit in March.

Russia’s fiscal position remains strong as its total external debt shrank in the first quarter to its lowest level since 2009, below the central bank’s gold and forex reserves that stood above $564 billion in early April.

(Additional reporting by Alexander Marrow and Katya Golubkova; Writing by Andrey Ostroukh; Editing by Mark Heinrich)

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