State debt lacks deficit – Kommersant

The Ministry of Finance stepped up activity in the OFZ primary market, maintaining a tough approach in satisfying applications. At the same time, the issuer consistently reduces the size of the premium on yield to the secondary market. Analysts explain this approach by reducing the budget deficit. However, the interest in buying government bonds is declining among large banks, including against the background of reduced liquidity.

On Wednesday, April 26, the Ministry of Finance limited the OFZ auction to only two issues with a constant coupon (OFZ-PD) – with maturities in November 2032 and May 2041. Aggregate demand amounted to 86 billion rubles, which is comparable to the previous week. At the same time, the placement volume exceeded 60 billion rubles. However, the bulk of borrowings fell on a shorter, “ten-year” issue: with demand for almost 70 billion rubles. applications for 48.3 billion rubles were satisfied. Demand for 19-year bonds amounted to only 16.4 billion rubles, of which the Ministry of Finance satisfied applications for 12.2 billion rubles.

Thus, investors showed caution before the meeting of the Board of Directors of the Central Bank, which is scheduled for next Friday. “Risks at this meeting are more likely to be shifted towards tougher statements, which could lead to a negative revaluation of the OFZ yield curve,” Mikhail Vasiliev, chief analyst at Sovcombank, said.

Holding back the demand of investors and systematic reduction of premiums on profitability to the secondary market.

According to Alexander Yermak, Chief Analyst of BC “Region”, when placing bonds, the average premium decreased from 7-8 bp. in January-February up to 4 b.p. n. in April. At the last auctions, premiums have already amounted to 3 bp. for both issues, notes Alexander Yermak.

In the first months of this year, the Ministry of Finance was more generous with bonuses against the backdrop of a high budget deficit. Then the budget deficit shrunk and the need to raise additional funding has decreased, allowing the ministry to shift to conservative borrowing practices. “The execution of the federal budget in March was quite balanced, it is likely that in April we will see a similar situation, so the government’s current revenues are enough to cover expenses,” says Vladimir Malinovsky, head of the debt market analysis department at Otkritie Investments.

However, under such conditions, the structure of demand for government bonds is changing, in particular, the role of banks is decreasing.

According to the Central Bank, if in February systemically important credit institutions accounted for 65.6% of demand, then in March the figure fell to 60.5%. In April, according to Mikhail Vasiliev, large banks may account for 55-60%. In addition to a reduction in the yield premium, this may be facilitated by the growth of inflationary expectations and, as a result, an increase in rates in the debt market, as well as a decrease in the volume of free liquidity in banks. “While in February the structural liquidity surplus was 3–5 trillion rubles, by the end of March it dropped to 1.1 trillion rubles,” Mr. Vasiliev points out. According to Vladimir Malinovsky, under the current conditions the issuer does not send a signal to SZKO about the need for large borrowings, satisfying their current needs for securities at auctions.

According to the interviewed market participants, the Central Bank will keep the key rate at the next meeting of the Board of Directors, and therefore the statements of the regulator’s representatives will be important for the market. “The regulator may soften its rhetoric regarding the possibility of raising the rate this year, which may be positively perceived by the market. Therefore, it is likely that, following the decrease in the yield of short-term and, to a lesser extent, medium-term OFZs, observed in the last month, a similar dynamics may also affect long-term issues,” notes Vladimir Malinovsky. The reduction in rates will attract interest in the primary market, which will make it easier for the Ministry of Finance to fulfill the quarterly plan.

Aggravation of geopolitics, a further expansion of the budget deficit, a possible drop in oil prices due to fears of a recession in the global economy and a further weakening of the ruble can worsen demand at OFZ auctions, Mikhail Vasilyev lists. At the same time, the Ministry of Finance always has banks that can, if necessary, support demand. “If the Ministry of Finance urgently needs to raise more money, it has both economic leverage — by increasing the premium, and verbal leverage — through negotiations with participants,” says Maxim Chernega, head of the DCM department of the corporate finance department at Tsifra Broker.

Vitaly Gaidaev