Going into debt – Finance – Kommersant

Russian investors are increasing their investments in corporate and government bonds. According to the Central Bank, in the fourth quarter, net purchases of such securities amounted to almost 100 billion rubles. Investors are attracted by their low volatility and high profitability, which significantly exceeds deposit rates. However, such investments should take into account the impact of the Central Bank’s monetary policy (MP) on the debt market, which may tighten in the near future.

attractive market

According to the Central Bank, the number of individuals on brokerage services increased by 14% in the second half of 2022, to 29.2 million people. This is half of the growth in the first half of the year and the weakest (in percentage terms) growth in the previous six years. As noted in the report of the Bank of Russia, in the first months after the February events of 2022, the increase in the client base was provided mainly due to the technical factor – the transfer of client assets to brokers that were not subject to sanctions. However, in the second half of the year, the growth in the number of clients was already supported mainly by investors who first came to the stock or foreign exchange market.

This could be facilitated by the active recovery of the market after the collapse in September. According to the results of the fourth quarter, the Moscow Exchange index rose by 10% to 2154 points, thus recouping the collapse of the third quarter. As a result, the value of assets of individuals under brokerage increased by 15% over the fourth quarter, to RUB 6 trillion, which is 28% lower than at the end of 2021.

Buy domestic

According to the Central Bank report, private investors continued to reduce investments in foreign assets, although at a slower pace than before. In the last quarter of 2022, net sales of shares and depositary receipts of foreign issuers and imaginary non-residents amounted to RUB 8 billion, which is almost half of sales in the third quarter. Sales are conducted both in connection with the remaining risks of such investments, and with the possible tightening of the requirements of the Central Bank for trading or for unqualified investors.

Under the current conditions, private investors actively increased their investments in ruble-denominated assets, primarily government and corporate bonds.

During the quarter, net purchases of government bonds amounted to 18 billion rubles, which is comparable to purchases in the previous quarter. A larger amount of funds was invested in corporate debt (RUB 83 billion), which was largely due to the issuance of replacement bonds. “The growth in the share of government bonds was ensured primarily by the forced transfer of OFZs recorded on the accounts of nominee holders from unfriendly countries to Russian depositories in November 2022. In addition, individuals participated in the auctions of the Ministry of Finance, ”the report of the Central Bank notes.

Reviewing Preferences

After a hard fall in the stock market in February-March last year, retail investors have significantly revised their preferences in terms of portfolio formation, market participants say. Moreover, the bond market has almost completely recovered six months after the February failure, while most stocks continue to trade at levels much lower.

“Now investors are more likely to be driven by the desire to preserve rather than increase their capital, especially if there is still a fairly high level of uncertainty in the market,” said Maksim Vasiliev, chief analyst at TRINFICO Management Company.

High interest in bonds was supported by the level of their yield, which exceeds the rates on deposits. According to the Central Bank, the average maximum rate on deposits in the third decade of February was 7.68% per annum, which is 50 basis points (bp) lower than the values ​​of the end of 2022. Meanwhile, the yield of medium-term OFZ reaches almost 9% per annum. Since the beginning of the year, it has grown by 40-80 basis points. P.

With an eye on the Central Bank

However, when buying bonds, one should take into account the dependence of their price not only on market conditions, but also on the monetary policy of the Central Bank, a change in which can lead to an increase in prices in case of a decrease in the key rate and a fall in case of its increase. In the previous three quarters, the Bank of Russia actively reduced the key rate, which had a positive effect on prices in the debt market, but at the February meeting, the regulator announced that in the event of increased inflationary risks, the expediency of raising the rate at the next meetings would be considered. As a result, the Central Bank raised its forecast for the key rate range for 2023 to 7–9% from 6.5–8.5%.

According to Mikhail Bespalov, an analyst at KSP Capital Asset Management, there are now more factors in favor of raising it than those that would indicate that the rate will remain at the current level on the horizon of the next few months. Among them, he refers to the strengthening of inflationary expectations, the budget deficit, the weakening of the ruble.

Nevertheless, at the next meeting, most of the analysts do not expect the rate to be revised. “As the most likely scenarios, we see the rate remaining at the level of 7.5% or its moderate increase by 25 bp. p., up to 7.75%,” notes Maxim Vasiliev. Mikhail Bespalov believes that the Central Bank may raise the rate in April if the factors for inflation increase by that time. “Even if the key rate is raised in March, the OFZ yield level already in February to some extent reflected the risks associated with the growth of the budget deficit and an increase in the need for borrowing,” he notes.

Quality checking

In the event of a stronger rate hike than expected, or tightening of the rhetoric of the leaders of the Central Bank, portfolio managers advise to reduce the term of debt securities in the investment portfolio. “As a rule, the longer the term to maturity, the more sensitively the security reacts to changes in the monetary policy. If an investor believes that inflation will accelerate, problems with logistics and imports of goods will worsen, and the Bank of Russia will begin to tighten monetary policy, then we would not recommend increasing the duration of the portfolio,” notes Ruslan Mustaev, portfolio manager at Otkritie Management Company.

In the absence of a surge in inflation, with continued moderate demand and continued easing of the monetary policy of the Central Bank, one can pay attention to long-term securities, especially since even in government bonds, rates reach 10.5–10.7% per annum.

In the current difficult economic conditions, market participants are advised to approach investments in corporate debt with caution and choose only high-quality issuers.

“In 2022, we witnessed several defaults in the corporate bond market, and the likelihood of an increase in their number in 2023 remains,” Ruslan Mustaev notes. According to him, during periods of rising rates and inflation, you can make good money on OFZ issues with a floating rate (floaters) and floating par value (inflationary OFZs, linkers).

Vitaly Gaidaev