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US sanctions against the secondary OFZ market could weaken Russia

“The cash buffer of the Russian Ministry of Finance is currently 6 trillion rubles and the government may refrain from issuing securities on the primary market for some time,” Fitch analysts wrote in a commentary late Friday.

Joe Biden (Photo: Kevin Lamarque / Reuters)

The demand of local banks and financial institutions for sovereign ruble debt is “high”. High non-energy revenues and a weakening ruble help the government reduce the need for borrowing; the authorities may spend the additional revenue ahead of parliamentary elections later this year.

Unlike many other emerging markets, the central bank in Russia did not increase its balance sheet through quantitative easing; if necessary, he can provide banks with additional liquidity, analysts say Barclays.

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“We do not expect a rapid capital outflow due to the new sanctions, but we expect foreign investors to be reluctant to increase their participation in OFZs, which will lead to a permanent reduction in their share in the OFZ market,” Barclays analysts write.

If the US extends the ban on OFZs to the secondary market, this may lead to the exclusion of Russia from the number of world indices, causing a significant passive outflow (about 15-18 billion dollars), writes Barclays.

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