At the first OFZ auction in 2024, investors liked government bonds with a constant coupon

At the first auction in 2024 for the placement of OFZs by the Ministry of Finance, investors showed pickiness. Based on the results of collecting applications for bonds with a constant coupon, the ministry attracted a record volume since April 2021. But the OFZ auction with a variable denomination was declared invalid in the absence of bids at acceptable prices. Banks, which had accumulated liquidity at the beginning of the year, actively bought OFZs with a constant coupon income in the hope of a quick transition by the Central Bank to easing monetary policy.

The placement of OFZ with a constant coupon yield (OFZ-PD) took place on January 17 attracted increased investor interest. The demand for fourteen-year securities exceeded 137 billion rubles, of which the Ministry of Finance satisfied the majority – 97.1 billion rubles. This is more than double the last placement of such securities, which took place on December 6, 2023, and was a record result at a single OFZ-PD auction since April 2021.

At the same time, the auction for placement of bonds with variable par value was declared invalid due to the lack of bids at acceptable price levels. “Against the backdrop of rising yields on OFZ-PD issues of similar maturities with a projected decline in inflation in the coming years, to compensate for this difference, investors want to buy bonds at an even greater discount in price, which, obviously, does not suit the Ministry of Finance,” notes the chief debt market analyst BC “Region” Alexander Ermak.

The high demand for OFZ-PD is associated with an almost month-long break in primary placements. The last time the Ministry of Finance placed bonds was on December 21, with a limit of 10 billion rubles. Given the low seasonal activity of corporate borrowers, there is a shortage of quality bonds in the market. At the same time, as Alexander Ermak notes, funds from redemptions and coupon payments on the debt market continued to flow.

The head of the analytical department of Zenit Bank, Vladimir Evstifeev, draws attention to the fact that at the beginning of the year the level of bank liquidity is traditionally high, which has a positive effect on placement volumes. According to the Bank of Russia, as of January 17, the liquidity surplus in the financial system reached 1.9 trillion rubles, the maximum since March of last year.

The weighted average yield on OFZ-PD amounted to 12.28% per annum and was 18 basis points (bp) higher than the last result of last year. However, this bet is only 1 bp. p. higher than the secondary market value. Such a low premium became possible due to the high activity of large investors – banks. According to Alexander Ermak, out of 87 satisfied applications, 20 large ones (with a volume of over 1 billion rubles) accounted for more than 92% of the total placement volume, with the largest application being almost 14 billion rubles.

Banks are traditionally the largest players in the debt market, but for most of last year they refrained from participating in OFZ-PD placements and preferred floaters (bonds with a floating coupon, see “Kommersant” dated October 5). A change in the priorities of credit institutions occurred at the end of the year.

“An additional positive factor is the strengthening of the ruble since the beginning of 2024, which allows us to count on some softening of the Central Bank’s rhetoric on the rate at the next meeting in February,” notes Dmitry Gritskevich, manager for analysis of the banking and financial markets of PSB. In addition, market participants expect the Bank of Russia to soften its monetary policy in the second half of the year.

If favorable market conditions continue, the Ministry of Finance may fulfill the quarterly borrowing plan (RUB 800 billion) ahead of schedule. Based on the results of just one auction, Alexander Ermak clarifies, the Ministry of Finance ensured the fulfillment of the “plan” by more than 12% and exceeded the “weekly plan” for borrowing by 33%.

Vitaly Gaidaev