Admiral of the floater – Newspaper Kommersant No. 195 (7396) dated 10/20/2022

At the OFZ auctions held after a month of inactivity, the Ministry of Finance attracted 50 billion rubles. This was facilitated by the offer to investors of government bonds with a floating coupon, which, due to low interest risks, are willing to buy banks. With the help of such securities, the Ministry of Finance can not only fulfill the quarterly plan by the end of the year, but also increase the amount of borrowing, as was the case during the pandemic in 2020, analysts say.

After a month-long break, the Ministry of Finance again decided to enter the ruble debt market. On Wednesday, October 19, investors were offered two OFZ issues maturing in November 2030 (variable coupon, OFZ-PK) and July 2031 (fixed coupon, OFZ-PD) within the limit of 25 billion rubles. for each release.

The most interesting issue for the market was OFZ-PK (the so-called floater). The last time the Ministry of Finance placed similar securities in November 2020, then at an unlimited auction, the demand for them exceeded 390 billion rubles, and the volume of placement reached 294 billion rubles. In general, in 2020, the Ministry of Finance placed floaters for more than 3.1 trillion rubles. This time the interest in the papers was also high, although it was inferior to the indicators of two years ago. According to the Ministry of Finance, demand exceeded supply by more than three times and amounted to 76.2 billion rubles. As a result, the issue was placed in full amount of 25 billion rubles, while the weighted average price was about 98% of the nominal value.

The issue of OFZ with a permanent coupon turned out to be less popular, although it was also placed in full. The total demand amounted to 31.4 billion rubles, the cut-off price was set at 83.38% of the nominal, which corresponds to a yield of 10% per annum. According to market participants, during the auction 34 bids were satisfied, of which 8 large ones accounted for 53.37% of the placed volume. At the same time, the maximum volume of the application amounted to almost 4 billion rubles.

According to analysts, the return of the Ministry of Finance to the practice of placing floaters is due to the need to increase borrowing in the debt market to finance the budget deficit this and especially next year.

According to the chief analyst of Sovcombank Mikhail Vasiliev, this year the budget deficit will amount to 1.5-2 trillion rubles. and will be closed mainly at the expense of the NWF. “Next year, the budget deficit is expected to be about 3 trillion rubles, and the Ministry of Finance is going to attract 2.5–3.5 trillion rubles in the debt market,” he points out.

To cover such holes in the budget, the funds of large market participants, primarily banks, are needed. However, as Mikhail Vasiliev notes, they do not show much interest in classic OFZs with a constant coupon, as they are not ready to take on interest rate risk in the face of increased uncertainty due to the conflict with the West, a likely global recession, and budget deficits in the coming years. Floating rate floaters carry no interest rate risk and are not subject to negative repricing. “The placement of floaters for the Ministry of Finance is now beneficial in the expectation that rates will decrease in the medium term. When placing classic OFZs, the ministry is forced to fix the current high rates for the entire period of circulation of the bonds,” notes Dmitry Monastyrshin, chief analyst at PSB.

Given the placement of OFZs with a floating coupon, analysts have no doubt that the ministry will be able to fulfill its quarterly borrowing plan (150 billion rubles), a third of which has already been fulfilled on the first auction day. Analysts at Bank Saint Petersburg believe that the Ministry of Finance will resume the weekly borrowing cycle, gradually increasing the volume of placements by the end of the year. Large OFZ repayments in November and December totaling 562 billion rubles may contribute to the increase in borrowings. “The Ministry of Finance will try to place OFZs in the maximum volumes that the market will allow, without significant pressure on current rates. In the crisis year of 2020, from the second to the fourth quarter, the Ministry of Finance placed OFZs by 200-500 billion more than the established plan,” Mr. Vasilyev points out.

Vitaly Gaidaev