Government securities in price

Liberalization of the foreign exchange market provoked an increase in the demand of non-residents for OFZs

The turnover of non-residents on the OFZ market increased tenfold in May - such statistics were published yesterday in the Bulletin of the Bank of Russia. This led to the fact that the total volume of transactions approximately doubled compared to April data and amounted to about 70 billion rubles. Analysts attribute such a significant increase in the activity of foreigners to the liberalization of the foreign exchange market and the strengthening of the ruble exchange rate. Experts predict an increase in demand for government securities among Western investors.

Non-residents significantly increased activity in the OFZ market in May against the backdrop of increased dealer operations, the Central Bank noted in its review. The turnover of non-residents in May reached several billion rubles, whereas in previous months it did not exceed 100 million rubles. At the same time, the volume of their purchases amounted to about half the volume of purchases by resident investors (excluding operations of the Pension Fund of the Russian Federation). At the same time, the Bank of Russia did not participate in market operations in May.

“The activation in the OFZ market is associated with the decision of the Russian authorities to lift all restrictions on capital transactions from July 1 of this year,” says Troika Dialog analyst Alexander Kudrin. Until now, non-residents wishing to buy Russian ruble government securities were required to reserve 7.5% of the amount for the year. Moreover, the non-resident client did not receive any interest for reserving funds in the account, and therefore such transactions were unprofitable.

According to the MICEX, in May, the largest number of transactions with ruble government bonds on the secondary market were carried out by Russian subsidiaries of Western banks - ING, Citibank, Deutsche Bank, HSBC (in April-March among the leaders were Citibank, Zenit, Troika Dialog, VTB , Sberbank, Khanty-Mansiysk Bank and Trust). Thus, it is obvious that these representative offices of foreign banks, being residents, bought securities in order to then resell them to their parent structures, which would later sell them to their clients - Western funds that previously did not have Russian government securities in their portfolios.

As the Central Bank notes, the majority of transactions continue to be medium- and long-term issues. The most liquid remained securities with a maturity of over ten years - their share amounted to more than 60% of the market turnover within the framework of the main trading mode. It is most promising to buy long-term securities, since it is expected that their value will change significantly, therefore, the investor will be able to sell them more profitably.

There has been a strong demand for such securities for a long time. Many experts note that the removal of restrictions has only increased the attractiveness of these instruments for investors. “I have been observing the activity of non-residents in this sector for a long time,” notes Igor Frolovsky, head of the securities issuance department of the Bank of Moscow. “The May surge, which became known yesterday, once again confirms the interest in these securities, which have high liquidity.”

The increase in demand for federal bonds coincided with cataclysms in the stock market, which is still in an unstable state. Alexander Kudrin believes that “the collapse in the stock market did not particularly affect the activity of investors wanting to buy OFZ.” “The correction in prices for ruble government securities was significantly less than for Eurobonds and shares,” the specialist emphasizes. Mr. Frolovsky, discussing the reasons for the May investor activity, noted the strengthening of the ruble exchange rate. By the way, the head of the Federal Service for Financial Markets, Oleg Vyugin, said yesterday that it is quite acceptable to further strengthen the Russian currency. “The continued strengthening of the ruble makes it even more profitable to invest in bonds denominated in national currency,” notes Mr. Kudrin. -- Demand for government securities among Western investors will continue to grow. This is a very promising market."

Nikolay KOCHELYAGIN, Natalya ROMANOVA