Investors estimated inflation

The Ministry of Finance adjusted the tactics of borrowing in the debt market, offering investors, in addition to OFZs with a constant coupon, government bonds with a variable denomination (pegged to inflation). Demand for securities amounted to a record for two years 107 billion rubles, and placement – 36.3 billion rubles, more than a third of the total borrowings on that day. However, the ministry continues to pay fairly high premiums to investors for the placement of government securities.

The Ministry of Finance increases the activity of borrowing in the debt market: on January 18, like a week earlier, the ministry offered two issues of government bonds with a constant coupon (OFZ-PD), adding OFZ with a floating par value (OFZ-IN, linker) to them. The total demand for all issues amounted to 229 billion rubles, almost twice as high as the previous week. At the same time, the volume of satisfied applications was 2.5 times higher than the result of a week ago, reaching 107 billion rubles.

OFZ-IN became the most popular. Demand for them amounted to 107 billion rubles, the maximum value since December 2020. The return of the linker, according to the head of the analytical department of Zenit Bank Vladimir Evstifeev, will be caused by the intention of the Ministry of Finance to increase demand for these issues under the current market conditions. “High interest in OFZ-IN is associated with increased pro-inflationary risks – a possible weakening of the ruble against the background of a decrease in the country’s oil and gas revenues and a likely expansion of the budget deficit due to a decrease in oil and gas revenues,” said Mikhail Vasiliev, chief analyst at Sovcombank.

The Ministry of Finance satisfied only a third of demand by placing bonds for 36.3 billion rubles.

According to Alexander Yermak, chief analyst of debt markets of BK Region, 43 applications were satisfied, three of which accounted for 95.5% of the placement. The secret of success lay in the premium to investors, as the bonds were placed at a price of 1 percentage point below the average market level the previous day. “Such high premiums have not been observed since the beginning of February 2022,” says Mr. Yermak.

The ministry was also generous at OFZ auctions with a fixed coupon. Aggregate demand amounted to 122 billion rubles, which is comparable to the demand for similar papers a week ago. At the same time, the placement volume exceeded 70 billion rubles, 1.7 times more than in the middle of the month. The weighted average yield on eight-year bonds was 10.16% per annum, and on 18-year bonds – 10.4% per annum. “A higher yield on long-term securities (10.62% per annum) last year was recorded once in early November, and before that, such a high level of rates, 10.5% per annum, was observed at auctions in late 2016 – early 2017” – says Mr. Yermak. According to Vladimir Evstifeev, the price premium for the eight-year issue amounted to about 40 basis points (b.p.), for 18-year bonds – 60 bp. P.

During the placement of long securities, there was even a failure – the Ministry of Finance initially announced the cancellation of the auction, but half an hour later announced that it had taken place.

Market participants could not recall cases of technical failures in the information alert. “Perhaps, the Ministry of Finance, due to the aggressiveness of applications, wanted to abandon the auction, but changed its mind at the last moment, since it is necessary to borrow because of the high budget deficit,” says Kommersant’s interlocutor on the market.

According to the results of the two auction days held in January, the Ministry of Finance ensured the fulfillment of the plan for attracting OFZs in the OFZ market in the first quarter in the amount of 18.4%, Alexander Yermak estimates. To fulfill it, in the remaining nine auction days, the ministry must borrow an average of 72.5 billion rubles, which it will be able to fulfill even without placing OFZs with a floating rate, which are most in demand among credit institutions. “At the beginning of the year, government spending is traditionally low, so a significant budget deficit is not expected,” says Mikhail Vasiliev. In addition, he notes, the Treasury is likely to have a stash of funds from last year, so the ministry will not be in need of resources in the coming weeks and can do without floaters for now.

Vitaly Gaidaev