Russian Central Bank: Foreigners’ Share In OFZ Bonds Set To Increase Further

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Elvira Nabiullina, the Governor of the Central Bank of Russia, said that non-residents are anticipated to raise their share of holdings in the OFZ treasury bonds of Russia even though she admitted that the risks remain to holders of Russian debt from the sanctions that were imposed by the United States of America.

Last Friday, on the sidelines of the IMF and World Bank spring meetings in Washington,  Nabiullina told a news conference that the share of foreigners of OFZ bond holdings has already surpassed 25 percent and it may rise towards 2018 highs of 34.5 percent.

The demand for the rouble-denominated bonds is perceived as a gauge of global market sentiment towards some of the assets of Russia.

An increase in foreign holdings supports the rouble and helps the finance ministry achieve its borrowing plan, while outflow of foreign funds would negatively affect the currency and other Russian assets, as was the case last year.

The higher the share of foreigners among the holders of OFZ bonds, the deeper the possible negative effect on Russian markets should the foreign investors choose to ditch Russian paper.

However, Nabiullina said that the current high proportion of foreigners who are holding the bonds is causing little concern in Moscow thanks to the low overall debt burden of Russia.

She said that the aim of the Central Bank of Russia was to minimise the impact of Western sanctions that were imposed against Moscow, particularly the possible sanctions that will be imposed on those who hold Russian bonds.

For months, the United States has been threatening to impose sanctions on Russian debt for what it calls the “malign activities” of Moscow, however, it has not taken any real steps against the ability of Russia to borrow.

Nabiullina stated: “If external developments take place … we have a full toolkit and we are ready to use it.”