Money is expected to rise in price – Newspaper Kommersant No. 231 (7432) dated 12/13/2022

Investors in conditions of uncertainty are not willing to take risks and therefore go into short debt securities. As a result, short OFZ rates fell to a year and a half low, and the spread in yields to long bonds widened to a maximum since the beginning of the year. At the same time, the Ministry of Finance continues to increase borrowing in the debt market to finance the budget deficit. However, while market participants do not expect a rise in rates, although they point to continuing inflationary and geopolitical risks.

At the beginning of the week, the spread between the yields of short and long OFZ issues widened to its maximum value this year, amounting to 336 bp. p. A month ago it did not exceed 200 bp. p., and at the end of the summer was 137 b. This is facilitated not only by the reduction in rates of short bonds, but also by the growth of long-term yields. According to the Moscow Exchange, on Monday, December 12, the yield on the shortest four-month OFZ issue dropped to 6.33% per annum, a year and a half low. At the same time, the average yield of long OFZ issues (with redemption in nine years or more) rose to 10.9% per annum, while at the end of the summer it did not exceed 10% per annum. “The spread between short-term and long-term OFZs is an indicator of the state of the market. The smaller it is, the more stable and predictable the prospects, the better the liquidity position of the banking system,” notes Vladimir Evstifeev, head of the analytical department of Zenit Bank.

The rapid decline in the yield of short securities is taking place against the backdrop of increased investor activity. On Monday, the volume of trading in three issues with maturities up to one year amounted to 2.5 billion rubles, which is five times higher than the volume of trading in seven issues of long securities.

According to Alfa Capital’s portfolio manager Yevgeny Zhornist, a lot of funds came to the market last week from the redemption of the OFZ issue. The Ministry of Finance paid investors 350 billion rubles, part of which was spent on the purchase of new securities (see “Kommersant” of December 8), and part of it spilled onto the secondary market. “Interest in short-term OFZs can also be formed at the expense of retail investors, since the yield on such instruments is higher than, for example, on bank deposits of comparable maturity,” notes Vladimir Evstifeev.

Interest in OFZ is supported by the expectations of market participants regarding the Friday meeting of the Central Bank, at which all respondents expect the key rate to remain at the current level. “Since the previous meeting at the end of October, stable components of inflation have remained close to zero, while maintaining moderate consumer demand,” said Pavel Mitrofanov, portfolio manager at Sistema Capital. According to Vladimir Malinovsky, head of the debt market analysis department at Otkritie Investments, against the backdrop of continued low growth in consumer prices and the need to improve lending conditions for Russian enterprises to support economic growth, the key rate may be reduced early next year.

These expectations traditionally increase the attractiveness of OFZ investments and lead to a decrease in their yields. But in conditions of heightened uncertainty, as Ekaterina Gorbunova, portfolio manager at TRINFICO Management Company, notes, they prefer short OFZs, which now look like a relatively safe instrument. The dynamics of long-term OFZs are based on longer-term expectations for a period of three to five years, which are less rosy due to ongoing geopolitical and sanctions risks. The pressure on the yield of long-term securities is exerted by the peculiarities of the budget policy, Vladimir Evstifeev believes. In three months, the Ministry of Finance attracted over 2.5 trillion rubles on the open market, and all placed securities had a maturity of 9–14 years.

The expansion of the spread between short and long OFZs will occur if the prospects for tightening the monetary policy appear in the comments of the Central Bank, said Ekaterina Gorbunova. The size of the budget deficit and whether the Ministry of Finance will keep the parameters of OFZ auctions will be important for the market. “The increase in the budget deficit due to the growth of government spending with a simultaneous deterioration in the revenue side already began to appear in November. Nevertheless, the value of the current spread of OFZ yields in the two-to-ten-year period is more than 200 bp. p. is the maximum over the past ten years. According to our estimates, this indicates limited space for raising long rates in the absence of geopolitical escalation,” notes Vladimir Malinovsky.

Vitaly Gaidaev