MOSCOW: Russia's Finance Ministry said it plans to borrow 300 billion roubles in OFZ treasury bonds between April and June, focusing more on bonds maturing in up to seven years that could narrow the gap between short-term and long-term borrowing costs.
Narrowing that gap could potentially enable the finance ministry to offer smaller premiums on longer-dated debt.
In the first three months of the year, Russia fell far short of its funding target for treasury bonds, placing around 180 billion roubles of the 306 billion it had targeted for the quarter.
A prolonged failure to borrow domestically may pose problems for covering Russia's budget deficit, expected this year at around 0.8 percent of gross domestic product.
For April-June, more than half of the maximum supply is to be made up of paper maturing in seven years or less.
"The announced schedule is likely to stoke curve flattening as the longer end would be relatively undersupplied," analysts at VTB Capital said in a note.
"However, we believe that the curve's slope is unlikely to decrease substantially, because the average spread between four- and 14-year bonds is close to 80 basis points. At the moment, the spread is 110 basis points".
The yield on 14-year OFZ treasury bonds edged down 7.32 percent from 7.34 percent on Friday, while yields on OFZ maturing in January 2016 inched up to 6.04 from 6.03 percent.
Russia plans to borrow 1.2 trillion roubles ($38.6 billion) on the local market this year.
Analysts at Raiffaisenbank said they expect OFZ yields to be under pressure as the plan reflects a higher need for government borrowing on the back of a budget deficit in the first three months of the year, seen at 0.9 percent of GDP.
"A rise in net borrowing (in the second quarter) would be another factor, apart from liquidity and inflation risks, that would pressure prices of government bonds," analysts at the bank wrote in a note.
Borrowing in medium-term durations, generally seen as up to 10 years, could give the Finance Ministry a cushion if the central bank starts lowering interest rates, which tends to depress demand for debt, as such paper has been in steady demand in the first quarter, VTB Capital said.
Analysts polled by Reuters expect Russia's central bank to cut interest rates in the second and third quarters.
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