The Central Bank has provoked a wave of sales on the market of government bonds


Investors are selling Russian government bonds after the promises of the Bank of Russia to lower its key rate before year-end, said traders of investment companies. “Speculative investors close out their positions,” — confirmed the head of Department of debt tools “Aton” Konstantin Glazov. Basically, according to him, sales are observed in the segment of short OFZ. “Although global sales until we see it,” he said.

On Friday, September 16, the Board of Directors of the Central Bank lowered its key rate by 0.5 percentage points, to 10% per annum. Later, the head of the Bank of Russia Elvira Nabiullina said that the regulator’s policy will remain moderately tight for quite a long time. The rate reduction may not take place before the first and second quarter of 2017, she said.

“Relative to last week, when yields were at 8.5–9% per annum, was quite a marked movement but as it is not critical”, — said the head of Department of active operations “Veles the Capital” Evgenie Shilenkov.

On Tuesday, September 20, the index of government bonds of the Moscow exchange decreased on 0,31%, to 402,37 points, the index of corporate bonds has lost 0,05%, having fallen to 312,73 points. Ten-year OFZ bonds have lost value since the beginning of the day, 0.4% and traded with a yield of 8.87 8.9 percent. Shilenkov notes that corporate bonds have been less sensitive to changes in the rate of the Central Bank, as their yields close to the rates of the interbank market. “Although in this segment significantly decreased the demand for short paper,” he says.

In General, as noted in his review analyst at Sberbank CIB Nikolai Minko, foreign investors Monday, September 19, relative to the actively disposed of long securities, and local participants focused on the sales in short releases.

“Local players can close their positions on government securities to foreign investors the Central Bank decision to lower the rate more restrained pace, on the contrary, a positive signal. This is an additional factor supporting the stability of the ruble,” — said the head of the Directorate of analysis of debt instruments “URALSIB capital” Dmitry Dudkin.

Sale on the market of ruble bonds is observed from Friday, after the regulator cut the key rate to 10% and Elvira Nabiullina, made comments regarding future interest rate policy. “The market has laid a greater reduction in the value of the bonds, and the Bank of Russia said that the real rate may be higher than 3%,” — said Konstantin Glazov. This means that the current yield of government securities at 8.5–9% per annum — is becoming less interesting for speculators, especially against the Deposit auctions of the Central Bank, the rates of which amount to 10.3%.

The market is supported by non-residents, who conduct operations carry trade. In a stable ruble for their investments in OFZ bonds remain attractive, says Glazov. The number of foreign investment funds expressed to Bloomberg that they see in the correction an opportunity to buy Russian bonds. “The Central Bank is clearly not happy that the market runs ahead and lays in the prices aggressive easing cycle. I still find the situation with the rates in Russia is attractive, although the currency does not seem cheap,” said Agency Manager Fund Aberdeen Asset Management Plc (assets $11 billion) Victor Szabo. He noted that he retains the portfolio of ruble-denominated OFZ bonds and is considering increasing their share.

Ashmore Group Plc believe that the decision of the Central Bank in the near future to change the rate increases the attractiveness of investments of borrowed dollars in ruble assets. Oppenheimer may increase investment in the bonds in case of further growth of profitability, according to Bloomberg.

Market participants do not exclude that the correction in the market will continue until the middle of the week. September 21 will be known whether the increased rate of the Federal reserve. “The fed will leave interest rates unchanged. We think that this decision will be accompanied by harsh statements that will support the dollar and weaken the demand for risky assets”, — the analyst of Sberbank CIB Tom Levinson. In this case, the Russian debt market, where traditionally a high percentage of foreigners can start a new wave of sales. According to the Central Bank on July 1, 2016, the proportion of nonresidents in the OFZ was 25.4%.

On the other hand, if the Central Bank will successfully achieve its goal to reduce inflation to 4% by the end of 2017, it will spur the interest of foreign investors in the Russian debt market. “I think that once the investors will get fresh evidence of the continued trend in the decline of inflation, it will be a signal for recovery of the bond market”, — said the portfolio Manager of UK “Kapital” Dmitry Postolenko.

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