According to the regulator, the reaction of the Russian market to external shocks in August 2018 was similar to the situation after the introduction of the April sanctions. But sales of OFZs in April was less – 92 billion rubles, as against the August 137 billion, gives statistics of the Central Bank.
The RGBI index that tracks the price dynamics of government bonds since the beginning of August to 10 of September decreased from 139 to 130 points. After that, the indicator was corrected to 134 points. The surge in volatility on the debt market in August was caused by media reports that the U.S. Congress is considering a bill restricting the participation of American investors in the OFZ. Investors still have no understanding of what will be new sanctions – they will affect only new issues of government bonds or cover the whole market.
Against this background, the ruble weakened by almost 7.4% for August (as the dollar and the Euro) and 18% for the period from April to September.
Readiness for the worst
The publication of new statistics on FB in August will not affect the market, as these data are already late, and the bidders understand that the outflow of foreign capital from BFL continued in September.
“According to my estimates, September was the most catastrophic from the point of view of the outflow and, most likely, the share of non-residents in rubles debt is around 25%. But it is obvious that investors who wanted to leave out of fear of sanctions, have already left this market, so that the outflow of capital must stop,” – says Director of the analytical Department of “Loco-invest” Cyril Tremasov. However, according to him, the share of foreigners in the OFZ is still high, and in the case of restrictions by the US on the participation of investors in state debt volatility can dramatically increase.
General Director of “Sputnik – capital management” Alexander Losev notes a decrease in the liquidity of the OFZ amid sanctions threats. However, the potential for sales is still there. “The outflow could continue on 27 September after the fed’s decision, if the rate will rise by 0.25 percentage points, as the interest in OFZ bonds among foreigners is mainly caused by carry-trade game on the difference in interest rates. If the fed will raise rates, it will be fully offset by the positive effect of the decisions of the Bank on 14 September to raise the rate also by 0.25 points,” says Losev.
Last month, the Ministry of Finance due to “adverse market conditions” had several times to refuse the placement of OFZ. On September 26, the Agency once again canceled the auction. The previous placement took place on 29 August, while the Finance Ministry managed to sell only securities to 13.2 billion rubles, while the planned 15 billion. Meanwhile, the plan of the Ministry in terms of attracting net loans in the market is 1 trillion rubles in 2018. In the first quarter, the Ministry attracted 463 billion, second only 217,6 billion rubles, although the planned 450 billion.
The Director of the Department of state debt and state financial assets of the Ministry of Finance Konstantin vyshkovsky, said on 5 September that the Ministry sees no need to stop the borrowing program over the coming four months, but to take any price it is also not ready.
Care about their
Monetary authorities have already made it clear to Russian investors that are ready to support the government securities, if necessary. In early September, Deputy Finance Minister Vladimir Kolychev said that the Ministry of Finance in the case of “extreme stress” is ready to begin to buy bonds from the market. However, he did not specify that in the understanding of the government is considered “extreme stress”.
On 21 September, the Central Bank in its financial stability review for August, wrote that in the event of deterioration in the financial market regulator is ready to impose a moratorium on negative revaluation of securities. But while volatility in the OFZ market investors suffered not so strongly, said the Central Bank. According to his calculations, the equity of banks due to the revaluation of OFZ bonds on August 1 in systemically important institutions decreased by 0.15 percentage points, in the “daughters” of foreign banks by 1 percentage point, in other banks – by 0.2 percentage points.
Russia already had experience of the redemption of OFZ in 2007, when the American market has increased volatility and the outflow of foreign investors from emerging market assets.