MOSCOW, July 22The Russian Ministry of Finance's plan for domestic borrowings for 2024, against the backdrop of weak results in the second quarter and a likely increase in the Central Bank's key rate, remains feasible: investor sentiment may change in a positive direction if the Central Bank announces the end of the rate increase cycle. If its growth continues, the Ministry of Finance may offer new issues of floaters by analogy with the fourth quarter of 2022, Alexander Ermak, chief debt markets analyst at BC Region, shared this opinion.
“The Ministry of Finance usually does not change the announced parameters of quarterly plans after the start of their implementation. In the current conditions, the implementation of the quarterly plan seems difficult, but the implementation of the annual plan may be more realistic… The plan for the third quarter of 2024, increased to 1.5 trillion rubles, has been completed so far by 7.5%, and for its successful implementation it is necessary to place almost 139 billion rubles during each remaining week,” says Ermak.
On June 19, after a pause, the Russian Ministry of Finance resumed auctions for the placement of federal loan bonds (OFZ). In the second quarter, the Ministry placed OFZs worth 505.5 billion rubles at par value, fulfilling the quarterly plan for raising the market by only 50.5%. In the third quarter, the Ministry of Finance plans to offer 1.5 trillion rubles worth of federal loan bonds at auctions.
In early July, Finance Minister Anton Siluanov said that the ministry expects to implement the planned internal borrowing program in the third quarter of 2024, but at the same time focusing on the market situation. 
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Reasons for results in the second quarter
Among the main reasons for the weak results of the primary market in recent months, the expert highlights the unfavorable conditions in the secondary market, where local (for the last two years) minimum prices and maximums for OFZ yields have recently been updated monthly.
“Against this background, at auctions there is a constant decrease in demand from investors for fixed income bonds (primarily for new long-term issues) and an increase in the aggressiveness of bids for both OFZ-PD and OFZ-PK, with demand for which within the range of 190-250 billion rubles, the share of cut-off applications by the issuer at the latest auctions ranged from 72-94% of the volume of investor applications,” explains Ermak.
In addition, in May-June, the Ministry of Finance recognized three auctions as not taking place due to the lack of applications at acceptable price levels, and also in late May and early June, due to increased volatility in the financial markets, the Ministry refused to hold auctions for the placement of OFZ to stabilize the market situation, the expert recalls.
«This week, on July 17, the auction for the placement of a twelve-year OFZ-PD issue was also declared invalid due to the lack of applications at acceptable prices,» Ermak noted. 
Prospects in case of a rate increase by the Central Bank
The subject of discussion at the Central Bank meeting on July 26 will be the step to increase the key rate, Elvira, head of the Bank of Russia, said in early July Nabiullina. In turn, Deputy Chairman of the Central Bank Alexey Zabotkin noted that the arguments for raising the key rate are becoming even more powerful, and the arguments in favor of maintaining it have noticeably weakened.
So, if the Bank of Russia announces the completion of the key rate increase cycle by the end of 2024, then, as the expert believes, the possibility of a change in investor sentiment in a positive direction cannot be ruled out. At the same time, Ermak admits the possibility that the Ministry of Finance may offer new floater issues for placement if the Central Bank rate continues to rise.
«If the key rate increase cycle continues until the end of this year, we do not exclude the possibility of the Ministry of Finance offering new OFZ-PK issues for placement, as was the case in the fourth quarter of 2022, when 95.6% of the annual placement volume was sold , amounting to 100.65% of the annual plan for 2022,” says Ermak.