The Ministry of Finance disrupts its borrowing plan for the third quarter in a row

Despite the end of the quarter, the Ministry of Finance did not intensify attractions in the debt market. The Ministry held auctions for OFZs with a permanent coupon that were not the most popular on the market. But even a placement that was insignificant in volume—RUB 17 billion—required a record premium for profitability from the issuer this year. As a result, the Ministry of Finance has disrupted its borrowing plan for the third quarter in a row. Growth in oil and gas revenues can partially compensate for the shortfall.

The Ministry of Finance’s offer of two issues of fixed-rate bonds (OFZ-PD) unexpectedly aroused high interest from investors. The total demand amounted to almost 100 billion rubles, of which 84.2 billion rubles. fell on the longest issue of OFZ-PD – with maturity in 2041.

However, the Ministry of Finance maintained a tough position and satisfied only a small part of the applications – only 17.3 billion rubles. Last time, more than half of the applications for almost 20.5 billion rubles were satisfied for these issues. At the same time, the weighted average yield at recent auctions increased significantly – by 56 basis points (bp), to 11.89% per annum for nine-year securities and by 49 bp. p., up to 11.83% per annum on 18-year bonds.

The premium relative to the secondary market has also increased noticeably. According to Alexander Ermak, chief debt market analyst at BC Region, at the first auction (for the placement of OFZ maturing in 2031), the relatively low demand was satisfied by 65.2%, but to place this small volume the issuer had to provide a “premium” investors in the amount of 10 b. P.

This level of “premium” has not been seen on the market since January of this year; in recent months it has rarely exceeded 5 bp. “The demand for the nine-year issue was 45% higher than the volume of balances available for placement. But even taking into account the cut-off of more than 90% of applications, the premium to investors on the weighted average yield was 9 bp. etc.,” notes Mr. Ermak.

The high aggressiveness of applications is associated with the latest decision of the Bank of Russia on the key rate.

Last Friday the regulator raised her immediately by 100 bp. p., up to 13%, and also did not rule out maintaining it at an elevated level for a long time.

“The harsh rhetoric of the regulator’s statement, which suggests the possibility of a further increase in the key rate up to 14% (according to the Central Bank’s forecast for the average value of the key rate until the end of the year), leaves the OFZ market under pressure along the entire yield curve,” notes Alexander Ermak.

Unlike the previous week, in recent days the debt market has calmed down somewhat – selling pressure has decreased, and as a result, quotes have stabilized, notes Vladimir Malinovsky, head of the debt market analysis department at Otkritie Investments. Under these conditions, investors could take advantage of the situation and ask the Ministry of Finance for an increased premium to the market; this is indirectly evidenced by the increased demand for the second issue.

“Probably, market participants expected that the small volume of placement at the first auction could force the issuer to increase the size of the premium provided, but this did not happen,” notes Vladimir Evstifeev, head of the analytical department of Zenit Bank. In addition, says Vladimir Malinovsky, after the auction, the securities in secondary trading began to gradually “slide” towards the offering price.

Due to the fact that there is one auction day left until the end of the quarter, the Ministry of Finance is highly likely to fail to fulfill the borrowing plan this quarter.

To implement it, the ministry will have to attract about 300 billion rubles, more than four times higher than the average volume of attractions per auction day in the third quarter. In the second, the gap was symbolic: with the planned 850 billion rubles. the issuer raised RUB 836 billion.

In such conditions, the risks of non-fulfillment of the annual borrowing plan increase, and to compensate for them, OFZs with a variable coupon will have to be placed more actively in the fourth quarter. But, according to Vladimir Malinovsky, the issuer holds such securities as a reserve, offering them to investors only when the demand for classic securities drops to a minimum. “Nobody, not even the state, wants to borrow at a floating rate in conditions where the cost of servicing the loan may rise further,” he explains.

However, the Ministry of Finance is unlikely to force the placement. In conditions of rising oil prices and the high ruble cost of a barrel (see “Kommersant” dated September 19), believes Vladimir Evstifeev, part of the lost loans can be compensated by the growth of additional oil and gas revenues.

Vitaly Gaidaev