The auction for the placement of short OFZs did not take place due to the lack of bids with an acceptable price
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In deteriorating market conditions, the Ministry of Finance has tightened its approach to the selection of applications. As a result, the auction for short OFZs with a constant coupon was declared invalid. Taking into account the fact that this issue is intended to saturate the secondary market with liquidity, the Ministry of Finance decided to limit itself only to longer-term securities, interest in which remains even under the conditions of the Central Bank’s strict monetary policy. Investors are willing to buy such securities because they expect that in the near future the regulator will begin to lower the key rate.
The placement took place on March 13 OFZ with constant coupon income (OFZ-PD) did not attract high interest from investors. The demand for fourteen-year securities barely exceeded 86 billion rubles, of which the Ministry of Finance satisfied a little more than half – about 49 billion rubles. This is slightly higher than the last placement of such securities, which took place on February 21, but is significantly lower than the indicators at the beginning of the year. At the same time, the weighted average rate increased from 12.73% to 13.15% per annum, reaching a new maximum over the past few years.
At the same time, a limited placement auction short bond issue (due in September 2026) was declared invalid due to “the lack of applications at acceptable levels.”
The last time the Ministry of Finance canceled the auction was on January 17, but then investors did not show interest in OFZs with a variable denomination. And then the lack of demand at an acceptable price was also pointed out as a reason, but data from the Ministry of Finance indicated scanty demand for bonds – a little more than 222 million rubles.
Due to the fact that the Ministry of Finance places short-term OFZ issues not so much to raise funds as to increase the liquidity of such issues on the secondary market, there was a demand for it. But against the backdrop of the continuing rise in rates on the secondary market, he could have been more aggressive in terms of applications, says Alexander Ermak, chief debt markets analyst at BC Region. Over the past week, the yield on the placed OFZ issue increased by 15 basis points (bp) to almost 13% per annum.
“The premium offered by the Ministry of Finance when placing relatively short-term securities has long been unable to compensate for the negative dynamics. Therefore, for any successful auction, the issuer had to offer market participants a yield above 13% per annum, setting another record, for which it apparently was not ready,” says Digital Broker analyst Vladimir Kornev.
Fears of a longer period of tight policy from the Bank of Russia are also reflected in long-term government bond issues.
Alexander Ermak notes that in order to meet the demand for fourteen-year securities, the Ministry of Finance was forced to offer a premium to the secondary market of 5 bp. p, whereas in the previous auction it was limited to only 3 b. P.
In addition to this, the concentration of large applications has increased. According to Mr. Ermak, out of 77 satisfied applications, the share of the nine largest ones with a volume of over 1 billion rubles. accounted for about 85% of the total placement volume. “Demand for long-term securities almost always significantly exceeds supply, since these issues are more interesting as investments in long-term portfolios in anticipation of a reduction in the Central Bank rate in the future,” notes Vladimir Kornev.
An increase in market participants’ interest in the Ministry of Finance’s auctions may appear with the appearance of the first signs of a slowdown in inflation and signals from the Central Bank about easing monetary policy. But such signals, according to Dmitry Gritskevich, manager for analysis of banking and financial markets at PSB, may appear no earlier than the end of spring or beginning of summer. “The Central Bank indicates that it intends to reduce inflation this year to 4–4.5%, but the market consensus on inflation for this year is above 5%,” notes Mr. Gritskevich.
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