Rates slow down the run – Finance – Kommersant
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The Bank of Russia lowered the key rate by another 50 basis points to 7.5%. Although the regulator has tightened its rhetoric, following the meeting, the revision of the rate may push bankers to reduce deposit rates. This will further draw the attention of investors to the debt market. However, not all securities are equally useful in this market, and in order to minimize risks, managers advise giving preference to securities of reliable issuers with a low default risk.
Key braking
On Friday, September 16, the Bank of Russia took another step towards lowering rates on the Russian market. As most Russian analysts expected, the CBR decided to cut the rate by only 50 bp to 7.5% per annum. However, further rate cuts are in doubt. At the final press conference, the head of the Central Bank Elvira Nabiullina informedthat the key rate easing cycle is coming to an end. In addition, she noted that during the meeting, the board of directors considered three options for action – keeping the key rate unchanged, reducing it by 25 bp. and a 50 bp decline. Analysts at Alfa-Bank did not rule out the option of a sharper rate cut — by 100 bp, so they assessed the CBR’s statement as quite tough.
According to Alexander Yermak, Chief Debt Markets Analyst of BC Region, after the statements of the head of the regulator at the October meeting, the next step could be a “pause”, but both a decrease and an increase in the key rate are not ruled out. “There is potential for a rate cut, but it is very limited. Now it is important to eliminate the problem of shortages in a wide range of goods and services, formed due to the sanctions,” said Ravil Yusipov, Deputy General Director of the UK TFG.
Playing on the curve
The OFZ market reacted neutrally to the announcement of the decision of the Bank of Russia to cut the key rate. However, later, after comments from the head of the regulator, the yield of long-term bonds increased by 9-12 bp, reaching 9.11-9.17% per annum. Such high values have not been observed since mid-July. On the contrary, short-term yields decreased by 2–5 bps. up to 7.3–7.46% per annum. “It is obviously too early to talk about sustainable trends. It is likely that in the near future the OFZ market may become more volatile, closely following the current situation, the impact of pro- and disinflationary factors, as well as signals from the regulator,” notes Mr. Yermak.
In the current conditions, OFZ yields are no longer as interesting for investments as they used to be, but they still allow generating income higher than on deposits. According to the portfolio manager of Otkritie Management Ruslan Mustaev, the OFZ portfolio may well show 8–8.5% over the year horizon. This is higher than the average maximum rate of the largest banks (6.84% per annum). “For institutional investors who are legally constrained in OFZ and in the first echelon of corporate bonds, it will be interesting to play on the angle of the OFZ curve – a four-seven-year section seems to be more interesting ideas in terms of profitability / risk than just investing in long-term securities”, – notes Ravil Yusipov.
No jokes with risk
More attractive yields are available in the corporate segment. According to Ruslan Mustaev, 9.5-10% can be earned here on the horizon per year. This will be facilitated by both higher rates than those on the OFZ market and narrowing spreads with them. According to Alexander Yermak, in the first tier, the yield spread to OFZ has narrowed to 70–75 bp. vs. 140 bp and 85 b.p. at the beginning and end of summer, respectively. By mid-September, the spreads on bonds of the second and third tiers decreased to 150 and 300 bp. against 285 and 565 bp at the beginning of summer respectively.
With the greatest caution, one should treat the securities of issuers of the third echelon because of the higher level of risk in them.
In August, another technical default was made by a small company EBIS, the quotes fell to 30-60% of the nominal value. If the profitability of high-quality issuers of the first and second echelons is not enough for investors, then, as Mr. Mustaev notes, it is better for them to consider allocating a portfolio to the stock market.
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