On Friday, February 21, the Russian Government Bonds Index (RGBI) updated its all-time high. At the Moscow Exchange, the indicator added 0.1% and for the first time in all the time of observation (since 2002) reached 153.5 points.
According to the Central Bank, in 2019 the total volume of the Russian federal loan bond market (OFZ) grew by almost 1.6 trillion rubles and reached 8.9 trillion. At the same time, the amount of foreign investments increased by 1.08 trillion rubles - up to 2.87 trillion. In general, foreign investors account for almost a third (32.2%) of all OFZ purchases.
Federal loan bonds are debt guaranteed by the government. Investors buy securities issued by the Ministry of Finance and receive a stable income on them. In other words, holders of government bonds lend their money to the Russian economy.
“One of the reasons for the increased interest in the Russian public debt was the stability of the national currency. Investors are increasingly convinced that the Central Bank of Russia is able to prevent sharp fluctuations in the ruble exchange rate, ”said Denis Gabdulin, personal broker of BCS Broker, in an interview with RT.
At the same time, market players are guided by the macroeconomic indicators of Russia and positively assess the ability of Moscow to provide investors with strong financial guarantees. This was told to RT by the head of the analytical research department of the Higher School of Financial Management Mikhail Kogan.
“Due to the low external debt, the adoption of the budget rule and the implementation of responsible fiscal policy, international rating agencies have recently returned the investment rating to Russia. Moreover, the sharp inhibition of inflation in the country allowed foreign investors to count on a relatively high income, ”said Kogan.
The experts surveyed by RT considered the profitability of Russian government bonds to be the main factor in the record growth of the OFZ market. Thus, investments in the country's debt securities remain more profitable for investors than investments in US bonds or European countries.
To date, the yield on government securities with a maturity of ten years is 5.9% per annum in Russia, and 1.5% in the United States. At the same time, in Germany and France the indicators are at negative levels - near -0.4% and -0.2%, respectively.
It is curious that Russian government bonds remain more attractive than securities and a number of developing countries, where the yield level also exceeds the US and Europe. About this in an interview with RT told the chief analyst of TeleTrade Peter Pushkaryov.
“For example, debt securities of South Africa or Brazil can yield from 8 to 10% per annum. At the same time, the currencies of these countries fluctuate dangerously. The yield on the Chinese debt in RMB is about 3%, but the country's currency can also weaken in the event of an aggravation of trade contradictions between China and the United States or the spread of the coronavirus, ”the analyst explained.
According to experts, the yield of debt securities directly depends on the interest rate set in the country. At present, in Russia the rate is 6% per annum, in the USA - 1.5-1.75%, and in the eurozone - 0%.
However, the Bank of Russia has been steadily reducing its key rate since June 2019. The regulator pursues such a policy to stimulate business activity in the country and economic growth in general. In the long term, the actions of monetary authorities lead to cheaper loans, increased domestic demand and investment.
At the same time, the policy of the Central Bank makes investments in OFZs less profitable. Thus, while the Central Bank rate still remains at a relatively high level, investors are trying to purchase the maximum volume of Russian government bonds with more profitable returns.
“The statements of the Central Bank allow us to predict two or three more key rate cuts in 2020. Investors take into account such a trend continuation and are in a hurry to place money in bonds, which leads to a rise in the price of securities, ”Dmitry Alexandrov, chief strategist at Univer Capital, said in a conversation with RT.
Currency protection
According to Mikhail Kogan, at present investment banks are counting on a reduction in the key interest rate of the Central Bank by the end of 2020 to the level of 5.25-5.5% per annum. It is expected that up to this point the Russian OFZ market will continue to grow.
- The building of the Central Bank of Russia in Moscow
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Moreover, in the near future government bonds may additionally rise in price against the background of the spread of coronavirus in China and a slowdown in global GDP growth. So, during the growing uncertainty in the global economy, investors begin to actively transfer money from stocks to debt securities for a more reliable saving of their funds.
“Investors, as a rule, prefer to wait out periods of instability in the market in traditional risk-free assets - bonds. This triggered a demand for fixed-income instruments. And although now the news about coronavirus is already less affecting investor sentiment, players are still not in a hurry to transfer money back to stocks, ”said Denis Gabdulin.
It is expected that a record inflow of new investment in Russian OFZs can to some extent support the Russian currency. Amid growing risks in world markets, experts admit a short-term increase in the dollar, but do not expect a sharp depreciation of the ruble.
“The difference between the yields of government securities of Russia and other countries will remain a powerful tool for a relatively strong ruble. Investors see a low inflation rate and the presence of a financial airbag in Russia from reserves of € 500 billion, which is enough to cover all the country's debts. Therefore, if, due to the threat of coronavirus, the dollar exchange rate will rise to 65 rubles for a short time, then after that the rate will gradually decrease to the level of 62–63 rubles, ”concluded Peter Pushkaryov.