UPDATE 1-Russia sees strong demand for 10yr OFZ bonds

* Finmin sells nearly all $1.1 billion treasury bond issue

* Moves to settle bonds internationally attracts foreigners

(Adds analyst comments, context)

MOSCOW, Oct 10 (Reuters) - Russia placed almost all theoffer of treasury bonds at auction on Wednesday, with strongforeign interest and one bid coming from a large state bankcovering nearly 50 percent of demand, three market sources said.

The Russian Finance Ministry sold 34.2 billion roubles ($1.1billion) of 10-year OFZ treasury bonds

at anaverage yield of 7.79 percent.

The prospect of Russia adopting a new system to cleartransactions warmed up demand at the auction.

Russian bond trading is set to become easier for the world'stop investment banks with the creation of a new centralsecurities depository and admittance of international settlementbank Euroclear to the Russian market within the next few months.

The average yield at the auction was at the lower end ofinitial guidance of 7.78-7.83 percent. Bids up to the cut-offyield totalled 47.6 billion roubles.

"22 bids for 1 billion roubles each were completed. Sourcessay that it was a large state bank. Whether it represented itsown interests or its clients remains to be seen," said EgorFyodorov, an analyst at ING bank.

Euroclear, a Brussels-based settlement firm owned by theworld's top trading banks, has recently reached a deal with theMoscow Exchange to start handling Russian government bonds.

Investors are entering the market in advance, expecting arise in valuations after the settlement system starts working.

"Foreign investors showed high interest in the long-termissue, because they expect that soon Euroclear and Clearstreamwill be granted the right to carry out transactions," analystsat Aton wrote in a note after the auction.

Analysts said some investors were selling Russia's Eurobondsto enter the rouble debt market, pointing at narrowing spreadsbetween some papers.

"The spread between Russia's Eurobond maturing in 2018

and OFZ 26204has narrowed from120 to 78 basis points lately," Egorov said.

Russia's Finance Ministry plans to auction 335 billionroubles ($10.7 billion) in OFZ treasury bonds during the fourthquarter of 2012.

Following are details of the auction, taken from ReutersXtra and provided by the Finance Ministry on its Web site():Maturity date 22 Jul 2012Issue volume 35.0 bln rblsBids (to cut-off yld) 47.6 bln rblsIssue (alloted) 34.2 bln rblsIssue (funds raised) 34.6 bln rblsCut-off price 99.4500Average price 99.6940Cut-off yield 7.83Average yield 7.79

(Reporting by Maya Dyakina and Yelena Orekhova, editing byJason Bush and Elaine Hardcastle)


Keywords: RUSSIA OFZ