US sanctions against Russian debt came into force

New US sanctions on Russian Federal Loan Bonds (OFZ) have come into effect. They prohibit American financial institutions (banks, brokers, investment companies) from participating in initial placements of bonds of the Ministry of Finance and the Central Bank, regardless of the issue currency. This applies to securities that will be issued after June 14.

The ban does not affect the secondary market, which allows American financial institutions, in theory, to repurchase securities from other players, but the US administration did not rule out that restrictions could be tightened in the future.

The Ministry of Finance holds OFZ auctions on Wednesdays. Thus, the first placement of bonds, in which American banks will not be able to participate, will take place on June 16.

The ministry previously said that, given the new US restrictions, only new OFZ issues with a placement start date after June 14 will be offered at auctions from that day on. There will be no additional placement of OFZs registered before June 14. This was done in order to "minimize the risks of forced sales" of existing securities by the Americans. If the old securities are additionally placed after the effective date of the sanctions, it will turn out that the old and new securities will have the same identification number, and American investors will fear that they will be accused of the prohibited purchase of new OFZs.

The decision does not apply to the bond issue currently being placed for individuals, the department added. The Ministry of Finance approved three new OFZ issues in the amount of 500 billion rubles each. each with maturities in March 2029, July 2031 and May 2041.

The Bank of RUSSIA reported that as of January 1, 2021, US investors held 6.9% of all OFZs in circulation, that is, securities worth about 200 billion rubles. At the same time, the share of one investor (whom the Central Bank did not disclose) accounted for more than 80% of the securities owned by the Americans, or about 160 billion rubles.

The US announced new sanctions on April 15. The White House explained them by saying that Russia is responsible for attempts to undermine democratic elections in the United States and allied countries, and is also involved in hacker attacks. In addition to restrictions against OFZs, the United States expelled ten Russian diplomats. Moscow responded by imposing restrictions on the work of the US embassy in Russia.

In early June, Finance Minister Anton Siluanov announced that the government had decided to completely abandon investments from the National Wealth Fund in DOLLAR assets. According to him, the share of the dollar in the NWF was 35%. As specified in the Ministry of Finance, the US currency has not been in the fund since May 20, and since June 1, gold in impersonal form with a share of 20% has been included in the regulatory structure of the liquid funds of the NWF.