On Tuesday, May 12, the Russian Government Bonds Index (RGBI) updated its all-time high. At the Moscow Exchange trading, the indicator added 0.6% and for the first time since the observation (since 2002) reached 154.4 points.
The debt securities market fully recovered after a sharp decline in March 2020. Then investors sold federal loan bonds (OFZ) in the amount of 293 billion rubles. This is evidenced by the data of the Bank of Russia. At the same time, the RGBI index fell to a minimum since April 2019 and reached 136 points.
“In March, OFZ sale was provoked by several factors: a sharp decline in world oil prices, increased fluctuations in the foreign exchange markets, as well as the rapid spread of COVID-19 in the world. However, since the crisis quickly became global rather than local, the decline was short-lived. Now the Russian market is one of the first among emerging economies to show growth and is already returning to pre-crisis levels, ”said Artyom Deev, head of the AMarkets analytical department, to RT.
Federal loan bonds are debt guaranteed by the government. Investors buy securities issued by the Ministry of Finance and receive stable income on them. In other words, holders of government bonds lend their money to the Russian economy.
“At the moment, inflation in Russia remains restrained, and the level of public debt is record low. At the same time, the reserves of the Central Bank double the total amount of the debt burden. Against the background of such dynamics, investors are becoming more confident that their investments are reliably protected and will allow them to receive a relatively high income, ”Anton Pokatovich, chief analyst of BCS Premier, explained in a conversation with RT.
It is the yield of Russian government bonds that the interviewed experts consider the main factor in the record growth of the OFZ market. Thus, investing in a country's debt securities remains more profitable for investors than investing in US bonds or European countries.
Today in Russia, the yield on government securities with a maturity of ten years is 5.9% per annum, in the United States - 0.7%. Moreover, in Germany and France the indicators are negative - near -0.5% and -0.3%, respectively.
According to experts, the yield of debt securities directly depends on the key rate set in the country. At present, it is 5.5% per annum in Russia, 0-0.25% in the USA, and 0% in the eurozone.
In April 2020, the Bank of Russia resumed cutting its key rate after a short pause in March. According to Anton Pokatovich, the actions of the regulator should stimulate the economy as the country gradually leaves the holiday regime. So, decisions of monetary authorities lead to cheaper loans, an increase in domestic demand and investment.
“At the same time, a decrease in the key rate is accompanied by an increase in value and a decrease in bond yields. At the last press conference, the head of the Central Bank, Elvira Nabiullina, did not rule out the possibility of another reduction in the key rate in June immediately by one percentage point, to 4.5% per annum - the minimum level in Russian history. Thus, while the rate is still at a relatively high level, investors are trying to purchase the maximum volume of Russian government bonds with more profitable returns, ”said Denis Ikonnikov, portfolio manager of QBF, in a conversation with RT.
According to the estimates of RT analysts surveyed, by the end of 2020, the Central Bank may reduce the key rate to 4.25-4.5% per annum. In this case, investor investments in Russian OFZs will continue to grow.
Against the backdrop of continuing uncertainty in world markets due to the COVID-19 pandemic, investors sell risky assets and increasingly transfer money to debt securities secured by state guarantees. Moreover, as experts say, the influx of new investments in Russian OFZs has a positive effect on the country's national currency.
Note that during the trading session on Tuesday, the Russian currency was able to appreciably strengthen on the Moscow Exchange. Against the backdrop of the record growth of the RGBI index and the simultaneous rise in oil prices, the dollar for the first time since the beginning of May fell below 73 rubles, after which it increased slightly.
“The growing demand for Russian debt securities may be a factor in the support of the ruble. In the future, in the second half of May - early June, in the absence of new negative shocks in global markets, we expect the dollar to form in the range of 72-75 rubles, ”said Anton Pokatovich.