Activity on the debt market declined in August

After a surge in July, activity on the debt market declined in August. Over the month, issuers attracted 553 billion rubles, of which two-thirds fell on placements of one structure. Many companies took a break after the decision of the Central Bank to sharply raise rates. As the regulator’s further plans are adapted and clarified, experts say, activity will increase, in particular, in foreign currency bonds.

According to the Cbonds agency, in August there were 142 placements of bonds of Russian companies for a total amount of almost 553 billion rubles, which is more than 10% lower than the previous month, but 20% higher than the result of the same period in 2022.

Over two-thirds of the total amount was accounted for by eight issues of bonds of Gazprom Capital with a floating coupon totaling RUB 300 billion. Excluding these issues, as noted by Tatyana Ambrozhevich, Senior Vice President of the Office of DCM at Rosbank, the total volume of placements will be 13.4% lower than the level of August 2021 (a year earlier, the results were also abnormally high due to a large number of non-market transactions).

The low activity of issuers, excluding Gazprom Capital, is associated with the traditional seasonal factor, as well as with the unexpected decision of the Bank of Russia to raise the rate from 8.5% to 12%.

This step radically influenced the activity of both issuers and investors.

“Before the decision of the Central Bank, activity was already reduced due to the holiday season,” says Denis Leonov, Head of the Department of Debt Capital Markets of the BCS CIB, Denis Leonov. “After August 15 and until recently, the bond market is in search of a consensus on a further vision of monetary policy.”

The investment preferences of investors have also changed dramatically.

Eduard Dzhabarov, Managing Director for Debt Capital Markets at Sberbank, notes that banks are not ready to buy corporate paper with a fixed rate, but are willing to go into floating coupon instruments that neutralize interest rate risk. “Issuers are not ready to raise financing at a floating rate now, given the high degree of uncertainty and fears of further growth in base rates,” notes Mr. Dzhabarov.

At the same time, the market did not completely close after the decision of the Central Bank on the rate, small companies continued placements. “Despite the market volatility, placements still go through and are successful, but at the same time, demand is mainly represented only by individual investors, so most placements are aimed at attracting retail demand,” says Denis Leonov.

Private investors are traditionally active in placements of third-tier securities and high-yield bonds. Alexander Yermak, Chief Debt Markets Analyst at BC Region, draws attention to the fact that in August the third tier was represented by three issuers from various industries (engineering, transport, IT), which placed three-year loans with spreads to the OFZ G-curve in the range of 215–285 bp. as well as a small energy company (TGK-14), which placed a five-year loan with a spread of 375 bp. P.

Market participants believe that the August decision of the Central Bank and the comments of its representatives on further steps on the rate will restrain the activity of issuers.

“Market participants have not yet adapted to the new situation, and the required revaluation of yields in the corporate segment has not yet been completed, since corporate issues usually react to changes in interest rates with some time lag,” notes Tatyana Ambrozhevich.

Denis Leonov is waiting for more certainty on the rate after the next meeting of the Board of Directors of the Bank of Russia on September 15. Therefore, he looks positively at the prospects for placements before the end of the year. “Following the completion of adaptation, a further decrease in liquidity and an increase in profitability along the entire length of the curve are possible. But as statistics show, sooner or later the market comes to life, and issuers and investors resume activity, but in new conditions,” notes Ms. Ambrozhevich. Alexander Yermak expects an increase in the activity of issuers in the segment of bonds with a floating rate or in friendly foreign currencies.

Vitaly Gaidaev