At auctions for the placement of OFZs on July 19, the Ministry of Finance attracted the least amount of funds over the past five months – 17 billion rubles.

At the latest OFZ auctions, the Ministry of Finance received the weakest result over the past five months. The volume of attraction amounted to less than 17 billion rubles. Investors are acting cautiously ahead of the CBR meeting, which is expected to raise the key rate by 50 basis points to 8%. However, even from further meetings of the regulator, investors expect the rate to rise up to 9-9.5% by the end of the year. Under such conditions, it is impossible to ensure the fulfillment of the plan without the placement of government bonds with a floating coupon.

OFZ auctions on July 19 did not promise high results, as, unlike the placement a week earlier, investors were offered less popular issues of classic and inflationary bonds. As a result, the Ministry of Finance placed government bonds for only 16.7 billion rubles. with a total demand of just over 30 billion rubles. This is 11 times less than the result of the previous week and the worst result since February.

The low activity could be related to the negative situation in the debt market — in recent weeks, OFZ prices have been falling on the secondary government bond market. As a result, the yield of long-term government bonds has increased since the beginning of the month by 14–30 basis points (b.p.), to the level of 10.5–11.2% per annum. Rates on medium-term (by 40–42 bp) and short-term (by 28–37 bp) securities rose even more strongly, the yield on which reached 9.5–10.2% per annum and 7.3–9% per annum, respectively. % per annum.

Alexander Yermak, Chief Debt Markets Analyst at BC Region, notes that as a result of a stronger growth in short-term interest rates, the spread between the yield of one-year OFZ and the longest issue of government bonds since the beginning of the month has narrowed from 315 bp. p. up to 265 b. P.

Market participants believe that the low demand for government bonds is associated with the risks of raising the key rate at the meeting of the Central Bank scheduled for this Friday.

Experts surveyed expect a rate hike of 50 bp. p., up to 8%.

“The weakening of the ruble and a noticeable acceleration of inflation require a tightening of the monetary policy of the Bank of Russia. Otherwise, the achievement of the inflation target in 2024 will be in jeopardy,” says Denis Popov, chief analyst at PSB. According to Mikhail Vasiliev, chief analyst at Sovcombank, annual inflation will exceed the target 4% in July, rise above 5% in September and end this year near 6.5%.

Due to the fact that the rate increase by 50 bp. p. is already included in the prices of government securities, the decision of the Central Bank will not have a strong impact on the OFZ market. However, Maxim Chernega, head of the DCM department of the corporate finance department at Tsifra Broker, notes that “the rate increase by 100 b.p. while maintaining tough rhetoric, could lead to a sharp increase in yields in government and corporate securities.” But he does not expect such a sharp rise, since such a decision, given the barely begun growth of the economy, will cause a flurry of criticism.

At the same time, analysts expect a further increase in the rate at subsequent meetings, and therefore the rise in rates will continue in the debt market. According to Mikhail Vasiliev, at the next meeting on September 15, the Central Bank may raise the key rate by another 50 bp. up to 8.5% per annum. Until the end of the year, analysts do not rule out a rate hike up to 9-9.5%. This, according to Alexander Yermak, can support the outstripping growth of rates at the short end of the OFZ yield curve up to 9.5-10% per annum on two-year securities and narrowing the spread between the yields of short and long government bonds to 200 bp. n. and below.

Further growth in OFZ yields will lead to worse conditions for the placement of debt by the Ministry of Finance. “In the context of growing government bond yields, uncertainty about the key rate peak and the budget for the next three years, investors at classic OFZ auctions will probably demand an increased premium,” Mr. Vasiliev believes. According to Maxim Chernega, the execution of the plan will depend on the willingness of the Ministry of Finance to significantly increase premiums to the market for long securities, or switch to short issues (3–5 years), or place floaters more actively, given that the demand for them is huge. The Ministry of Finance, believes Mikhail Vasilyev, will be able to place OFZs for 2 trillion rubles in the second half of the year. and fulfill the annual plan, the share of floaters can reach 75-80%.

Vitaly Gaidaev