FDIC failed to locate a definitive requirement in the situation.
In recent days, the Russian bond market has experienced a significant setback, with the average yield for OFZs (Russian federal loan bonds) exceeding 14.5% annually for the first time since mid-July. This upward trend can be attributed to a number of factors, including uncertainty about budget risks and geopolitics.
The first post-September Bank of Russia meeting auctions for OFZ placements had among the lowest demand and placement volumes this year. The placement volume was a mere 44.3 billion rubles, the lowest since early April. This low demand was primarily due to the Bank of Russia's decision to reduce the key rate by only 1 percentage point, not the 2 percentage points most market participants had expected.
Elvira Nabiullina, head of the CBR, stated that if the budget deficit is higher than projected, the ability to cut the key rate will be constrained. This cautionary statement from the Central Bank Governor may have contributed to the reduced expectations for further rate cuts this year. The comments from the Central Bank reduced the expected rate cut by the end of the year to 14%, down from some market participants' expectations.
The RUCBTRNS index of corporate bonds fell by 0.5% over four days, to 185 points. Mikhail Vasilyev, chief analyst at Sovcombank, noted an increase in supply from issuers of floating-rate notes, which could be another factor contributing to the increase in yields.
"Aeroflot" closed the order book for a 30 billion ruble floater on Monday. "Rostelecom" offered similar papers for 15 billion rubles on Wednesday, and "Gazprom Capital" offered 40 billion rubles. Andrei Zolotov, portfolio manager at Alfa Capital Management, believes that in the current situation, money market instruments will be of greater interest, but floaters could become the preferred instrument if there's a fundamental review of the prospects for key rate movements.
Sergei Chernyshenko, head of the equity operations department at TFPG Asset Management, stated that the market was cooled by comments following the Central Bank's meeting, reducing the likelihood of a more significant rate cut by the end of the year. The premium to the secondary market for the 11-year OFZs was 7 basis points (bps), and for the eight-year OFZs, it was 10 bps.
By the end of the week, "Atomenergoprom" and "Dom.RF" are expected to offer government bonds. The low demand for fixed-coupon OFZ issues, such as the total demand of just 81.6 billion rubles on September 17, the lowest in six months, suggests that this trend may continue in the near future.
In conclusion, the Russian bond market is facing challenges due to uncertainty about budget risks and geopolitics, as well as the Central Bank's cautious approach to rate cuts. However, some market participants believe that floaters could become more attractive if there's a fundamental review of the prospects for key rate movements.
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