OFZs with a permanent coupon were placed abundantly and inexpensively

A reduction in rates on the secondary market helped the Ministry of Finance place a large volume of government bonds with a fixed coupon with almost no premium. The volume of attraction exceeded 42 billion rubles, which was the best result for such securities in 2023. In anticipation of the completion of the cycle of raising the key rate, some investors are actively buying government securities on the secondary market, which leads to an increase in their value and a decrease in yield. However, a number of experts doubt that the rate will soon go down.

Against the backdrop of declining yields on the government debt market, at the auction held on November 8, the Ministry of Finance managed to place a large volume of fixed income OFZs. These securities are not considered attractive to the main investors – state-owned banks. However, the proposed OFZ issue with maturity in May 2038 aroused high interest – demand exceeded RUB 101 billion, which was the best result for an issue of such a maturity this year. In the last three months, demand for such securities rarely exceeded 10 billion rubles, and the volume of placements amounted to 1.5–2 billion rubles.

This time the Ministry of Finance placed bonds for 42.3 billion rubles. (best result in 2023) with a weighted average yield of 12.17% per annum. According to Andrey Kulakov, head of the fixed income analysis department at Gazprombank, the premium to the secondary market was only 2-3 bp. p., which is below the average values ​​of recent months. In addition, the final yield was 13 bp. p. below that established at the last auction of this issue on October 18.

In August-October, the cost of servicing government debt grew against the backdrop of both an increase in the key rate of the Bank of Russia and the regulator’s tough rhetoric. During this period, the yield on long-term issues increased by 115–141 bps. p., reaching 12.3–12.5% ​​per annum.

But at the end of last week, rates on the secondary market fell sharply. Over the past few days, the yield on short-term securities has decreased by an average of 75 bps. p., up to 12–12.7% per annum, medium-term – by 60 bp. p., up to 11.7–11.9% per annum, long-term – by 55 bp. p., up to 11.9–12.1% per annum.

The reduction in rates on short-term securities, notes Dmitry Nikonov, head of the investment analysis department of Sovcombank, occurred without apparent objective reasons. In the case of longer-term OFZs, investors could lock in increased yields for a long period. “Currently, OFZ yields provide a high premium both to current inflation (we expect 7–8% at the end of the year) and to the Central Bank’s long-term target of 4%,” notes Mr. Nikonov.

A decrease in yields may indicate a decrease in investors’ inflation expectations and strengthening hopes that the key rate hike cycle will soon end.

“The volume of demand for classic issues, exceeding 100 billion rubles for the second week in a row, partly confirms the hypothesis that the market believes that the rate increase cycle has completed or is close to completion,” believes Andrei Kulakov.

As a result, speculators who had previously played to reduce the value of OFZs were forced to partially close short positions, which contributed to a more active reduction in rates, note two Kommersant interlocutors in the debt market.

However, not all market participants share the optimism regarding the key rate movement. The regulator has already stated that the current cycle will differ from the situation in 2014 and 2022, when, after a sharp increase, the transition to a decrease occurred after about a month and a half.

Dmitry Gritskevich from PSB in the base scenario expects that the key rate will remain at the current level of 15% until the middle of next year: “Given the high global uncertainty, in our opinion, it is premature to change the structure of bond portfolios in favor of long and medium-term fixed income securities “

Vitaly Gaidaev