The Ministry of Finance held an OFZ-PK auction for the first time since the increase in the key rate
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Floating-rate bonds (floaters) offered by the Ministry of Finance on August 30 were in demand by investors. However, the issuer took a tough stance and satisfied less than a third of submitted bids. Taking into account the record low demand for classic papers, the total volume of placement for the day amounted to 57.4 billion rubles, which is almost two times lower than the result of the previous similar auction day. To fulfill the quarterly plan, the Ministry of Finance will now have to allocate almost 100 billion rubles. per day, which cannot be fulfilled without a more active offer of floaters.
Wednesday, August 30 took place the first placement of bonds with a floating rate (OFZ-PK, floater) after the increase in the key rate of the Central Bank. As a result of the auction, the total demand for OFZ-PK amounted to 185 billion rubles, which is more than 20% lower than the placement indicator three weeks ago (233.9 billion rubles) and the worst result since mid-June.
But even this demand turned out to be enough, given the relatively small balance available for placement (about 135 billion rubles).
The Ministry of Finance satisfied less than a third of applications – for 55.9 billion rubles, which is almost half the amount of borrowings at the beginning of the month (94 billion rubles).
Last time floaters housed so weak at the end of May, then the demand did not reach 144 billion rubles, and the volume of placement amounted to only 42.9 billion rubles. In July and August, the volume of demand most often exceeded several hundred billion rubles, and the volume of placement was 94-170 billion rubles. Like three months earlier, the Ministry of Finance cut off the most aggressive bids submitted by investors.
According to Alexander Yermak, Chief Debt Markets Analyst at BK Region, the issuer limited the “premium” for investors by setting the cut-off price 0.34 percentage points higher than at the auction three weeks ago. “The ministry satisfied only 33 applications, four large ones of which amounted to 10-20 billion rubles. accounted for 89.5% of the placed volume, two more applications of 1 billion and 2 billion rubles. ensured the placement of another 5% of the issue,” notes Mr. Yermak.
The decrease in borrowings, according to Dmitry Gritskevich, head of analysis of banking and financial markets at PSB, is a positive signal for the market, indicating that the ministry does not yet experience an acute need for borrowed funds and is ready to sell OFZ without a significant premium.
In the context of tightening the monetary policy of the Bank of Russia, the floater is a more risky tool for the Ministry of Finance, analysts say.
“In the case of OFZ-PD, the Ministry of Finance knows how much it will pay, and what coupon they will pay on OFZ-PK, especially in a situation where the key rate grows, is unknown, in any case this will be an additional burden on the budget,” explains the head direction of the DCM of the Department of Corporate Finance “Tsifra Broker” Maxim Chernega.
However, investors have lost interest in OFZ auctions with a fixed coupon. On Wednesday, the total demand for OFZ-PD amounted to 3.3 billion rubles, which is the minimum volume since March 2015. As a result, the Ministry of Finance granted applications for 1.5 billion rubles. The weighted average yield was set at 11.35% per annum.
The weak results, according to Andrey Kulakov, head of fixed income analysis at Gazprombank, are partly due to the fact that the yield on the secondary market issue was 8-9 basis points (b.p.) below the level of the curve: “Even a relatively wide premium for placement to the yield of the issue on the secondary market (9 bp) only equalized it to the level of neighboring issues, but did not become an effective premium to the curve”.
As a result, according to market participants, the rate of borrowing by the Ministry of Finance decreased. And to fulfill the quarterly plan in the remaining four auction days, it is required to raise about 100 billion rubles. Given that the average volume of borrowings in August amounted to only 60 billion rubles, it will be difficult to fulfill the plan without a more active offer of floaters. But the plan is indicative, there is no clear need to execute it in this particular quarter, Mr. Kulakov notes. In his opinion, if necessary, the Ministry of Finance can accelerate borrowing later. The September meeting of the Central Bank will be important, the expert adds, “which may provide more clarity on further policy: with a positive outcome, this may spur demand.”
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