Borrow and re-borrow – Newspaper Kommersant No. 200 (7401) dated 10/27/2022

The record demand for government bonds allowed the Ministry of Finance to attract 178 billion rubles to the budget at the latest auctions. There have been no such large-scale placements for a year and a half. This was facilitated by improved market conditions and the supply of securities that meet the needs of various market participants. Despite the early execution of the quarterly plan for borrowing, the Ministry of Finance will continue to actively borrow due to large repayments in November and December, experts say.

On Wednesday, October 26, the Ministry of Finance spent the second placement of government bonds this month. In addition to OFZs with floating (OFZ-PK) and permanent coupons (OFZ-PD), which were placed last week, investors were also offered bonds with inflation-linked yields (OFZ-IN). In addition, the auctions were unlimited. According to Alexander Yermak, Chief Debt Markets Analyst of BC Region, the last time the Ministry of Finance held auctions for three issues at once was in mid-May 2021, and there have been no unlimited placements since the beginning of this year. The total demand for the three auctions reached 337 billion rubles, and the volume of placement amounted to almost 178 billion rubles. These are the best results since April 2021.

The expansion of the list of instruments and the absence of limits, according to analysts, was intended to maximize the volume of attraction against the backdrop of a temporary improvement in the market situation. “Since the beginning of October, OFZ-PD yields have declined by 57–144 bp on average across the market. At the same time, for long-term OFZ issues, it fell below 10% per annum,” notes Mr. Yermak.

However, not all issues were equally interesting to investors. Expectedly high demand was noted for floating rate bonds (floaters) maturing in November 2030. Demand for them reached 219 billion rubles, the volume of placement amounted to 124 billion rubles. at an average price of 97.5% of the face value.

According to bidders, 61 bids were satisfied, with the top nine accounting for 85% of the volume of placements, and the largest amounting to 19.5 billion rubles.

The main demand for such securities is traditionally noted by banks. “Floaters are interesting as a tool for placing liquidity, which is now in abundance in the banking system, which will only increase by the end of the year against the backdrop of increased spending by the Ministry of Finance,” says Anton Kulikov, an analyst at BCS Mir Investments. Besides, there is no interest rate risk in these securities, market participants note, since the rate on them is close to the current money market rates. “When the market conditions worsen, such securities do not fall in price, their profitability grows due to the increase in the coupon rate,” says Dmitry Monastyrshin, chief analyst at PSB.

Demand for seven-year OFZs with a constant coupon turned out to be three times lower (76.5 billion rubles), but the Ministry of Finance cut off most of the applications, placing papers for 20.7 billion rubles. at an average yield of 9.87% per annum. The largest application accounted for 5 billion rubles, and in total for applications with a volume of more than 1 billion rubles. accounted for 55% of the placement. But even to achieve this result, according to Mr. Yermak, the Ministry of Finance had to provide a yield premium of 11 bp. which is more than double the average premium at the beginning of the year.

OFZ bonds linked to inflation were placed in the amount of 33 billion rubles. with a total demand of 41 billion rubles. A larger amount of funds was attracted only in December 2020 (47 billion rubles with a demand of 113 billion rubles), last year, in the framework of such auctions, the Ministry of Finance borrowed an average of 11 billion rubles. The high interest in such securities indicates increased inflationary expectations. On Wednesday, the Ministry of Economy reported that weekly inflation accelerated by the end of October, and reached 10.6% since the beginning of the year. “When holding such securities to maturity, the investor is guaranteed to receive a yield higher than inflation by 3-4 percentage points,” notes Mr. Monastyrshin.

As a result, the ministry fulfilled the plan for borrowing for the fourth quarter (150 billion rubles) ahead of schedule, placing bonds for almost 228 billion rubles in two auction days. “The Ministry of Finance may continue borrowing to replenish the liquidity reserve for the redemption of old securities,” Dmitry Monastyrshin believes. In particular, two issues will be redeemed in November-December: for 212.4 billion rubles. and 350 billion rubles.

Vitaly Gaidaev