OREANDA-NEWS. November 13, 2010. The EBRD has concluded the first-ever rouble Ruonia-indexed Overnight Index Swaps (OIS) in path-breaking transactions with Deutsche Bank and ING over the past few months, thus inaugurating the market in a new Rouble interest rate swap derivative instrument, reported the press-centre of EBRD

An OIS is a derivative instrument which, for the first time, gives Russian market participants the possibility to manage overnight interest rate risk exposure in roubles without using cash assets or resorting to currency swaps.

Derivatives generally allow for more flexible and efficient approach to interest rate risk management than cash instruments. These inaugural EBRD transactions represent a further contribution by the Bank to the development of local capital markets.

The use of the OIS in Russia was made possible by the launch last September 8 of the Rouble Overnight Index Average (Ruonia), which is calculated on a daily basis by the Central Bank of Russia, based on the contributions of 31 banks.

The creation of a credible overnight index was the pre-condition for the launch of a market in rouble interest rate derivatives. The Ruonia index offers a fair reflection of rouble overnight rates and can thus act as reliable benchmark for Overnight Index Swaps in Russia.   

Ruonia is the Russian equivalent of the Euro Overnight Index Average (Eonia), a weighted average of all overnight unsecured lending transactions made by 57 contributing banks in the Euro area’s inter-bank market. The Eonia index is calculated by the European Central Bank.

Since its launch in the 1990s, the OIS has become a widely used, highly credit-efficient and liquid derivative in all major currencies.

An OIS allows better risk management by, for instance, giving banks a possibility to borrow overnight money and swap the overnight interest rate to a three-month one. Its use is particularly appropriate in markets such as the Russian one where the vast majority of inter-bank transactions are concluded on an overnight basis.

“The EBRD’s pioneering transactions in this market were one-week swaps tied to Ruonia, marking an important step forward in developing and deepening Russian capital markets. We hope these OIS will serve as the platform for the emergence of longer-dated instruments. Yesterday, we actually traded a one-month Ruonia OIS with ING, so the curve is already extending.” said the EBRD’s Treasurer, Axel van Nederveen.

EBRD believes the new derivative instrument fills an important gap and is keen on participating in the development of this market, not only as part of its commitment to developing local currency capital markets, but also as an active participant in the market.

“The EBRD is both a significant rouble lender and a borrower on the Russian market and this by definition exposes the Bank to interest rate mismatches, hence the logic of using Rouble derivative instruments to manage this risk,” Mr. van Nederveen added.

The EBRD has since 2005 raised a total of 78.67 billion roubles through 31 bond issues with an average maturity of 5.1 years. Of this, 39.5 billion roubles were raised on the domestic market through eight issues with an average maturity of 6.1 years.

The EBRD’s local currency lending programme in Russia has since 2002 seen the Bank arrange 128 rouble loans for a total of 95.34 billion roubles, of which 69.7 billion roubles remain outstanding. Of the total, the proportion directly held by the EBRD is 56.74 billion roubles with an average maturity of 7.6 years.

In its latest fund-raising in Russia, the EBRD last month completed the launch of three eight-year index-linked rouble bonds, one of the first such offerings on the Russian domestic market, gathering a total of 14 billion roubles to finance the Bank’s local currency lending programme.

In addition, the EBRD has in the last few weeks supported two bond issues by two Russian power sector companies, each of which set new benchmarks for the market.

On October 22, the Bank bought 4.5 billion roubles of RusHydro’s 5-year 20 billion rouble Eurobond, the first by a Russian power sector company. On November 1, the EBRD announced it had bought 3.66 billion roubles of the Federal Grid Company’s 7-year 15 billion rouble domestic bond, the longest maturity achieved for corporate bond outside the banking sector since the crisis hit Russia in 2008.