* Russia preparing to offer OFZ bonds in yuan - NFA head * U.S. investors still buying OFZs on secondary market -NFA MOSCOW, June 8 (Reuters) - Russia could issue OFZ government bonds denominated in Chinese yuan within two years, the head of Russia’s financial market lobby group said. Moscow first floated the idea in 2016, but the plan has been postponed amid growing risks of Western sanctions against Russia, despite numerous rounds of talks with Beijing. Such risks have since materialised, with U.S. banks barred from buying rouble-denominated OFZ bonds directly from Russia from mid-June, after being prevented from buying Eurobonds directly in 2019. Vasily Zablotsky, President of the National Finance Association (NFA), a non-government lobby group of Russian banks, told Reuters that the new sanctions will not hold back foreign investors from buying Russian state bonds. Zablotsky, who is involved in preparing documents for OFZs in yuan, said the issue is a matter of bilateral relations between China and Russia. “I think we can gradually complete this work and see OFZs in yuan within two years,” Zablotsky said in an interview. Russia uses OFZ bonds to plug holes in the budget, offering the papers with investment-grade rating on a weekly basis. OFZs are popular among foreigners thanks to their lucrative yields but in the past few months Russia’s major banks became the main buyers of the state debt at weekly auctions. U.S. investors held 40% of OFZ bonds in circulation as of April 1, while Chinese investors’ share was at 4%, according to the Russian central bank. Zablotsky said U.S. investors keep on buying OFZ bonds on the secondary market and demand for state bonds from foreigners, including Chinese investors, remains high. The move towards closer ties with China, Russia’s second-largest trading partner after the European Union, comes as the finance ministry is ditching U.S. dollar assets in its National Wealth Fund and raising yuan and gold holdings. Russia has been gradually reducing its dollar holdings since the imposition of Western sanctions after Moscow’s annexation of Crimea in 2014, and has sought to partially decouple from the Western financial system. Zablotsky said the need to live under sanctions has helped Russian banks to weather the coronavirus crisis, as they have already accumulated enough forex liquidity and cash. (Writing by Andrey Ostroukh; Editing by Alexander Smith) Our Standards: The Thomson Reuters Trust Principles.