MOSCOW, Feb 2 (Reuters) - Russian government bonds, known as OFZs, rallied on Friday following a U.S. Treasury report cited by Bloomberg that warned about the implications of sanctions on holding Russian debt.
Investors in OFZ bonds, popular among foreign market players thanks to their lucrative yields, have been on alert about new possible sanctions recently, buying into Russian debt pre-emptively due to fears of losing access to them in the future.
A Treasury Department report, cited by Bloomberg on Friday, indicated Washington was wary of imposing sanctions on buying rouble-denominated OFZ bonds, warning the move could cause financial turmoil and would also lead to Russian retaliation.
"A U.S. conclusion that sanctioning Russia sovereign debt could be uncertain and risky for global markets should unleash further downside for OFZ yields," Dmitry Polevoy, chief economist at ING Bank in Moscow, said in a note.
Yields of OFZ bonds maturing in 2033 , one of the most liquid papers on the market radar, dropped to an all-time low of 7.44 percent as of 1511 GMT from levels of around 7.48 percent seen before the report.
A decline in yields, which move in the opposite direction with bond prices, suggested an increased demand for OFZ.
"Those OFZ bonds have been snapped up recently in any size of the offer and at any price," said a senior trader at a major state bank in Moscow.
Yields of OFZ bonds maturing in 2028 , also one of the most popular, briefly dropped to 7.17 percent after the report but later recovered to previous levels of 7.21 percent.
Fears of risks of limited access to OFZ bonds that offer yields above many other comparable bonds fanned demand for them recently. At the latest auctions of the finance ministry this week demand for Russian government bonds exceeded the amount of paper on offer by more than three times. The finance ministry has not immediately replied to a request to comment on the report.
Previously, the finance ministry warned that possible U.S. sanctions on Russia's debt would harm foreign investors, who play a major role on the OFZ market by holding more than 32 percent of all OFZ bonds issued by Russia.
(Reporting by Andrey Ostroukh, Editing by William Maclean)
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