Bonds with many variables – Kommersant

The Bank of Russia does not exclude the possibility of raising the key interest rate. This puts pressure on the price of short classic OFZs. Protection can be provided by floaters, which are issued by both the Ministry of Finance and corporate borrowers. The latter are increasingly using such securities to attract funding. With the highest issuer rating, such bonds are available to non-qualified investors without restrictions. However, with such investments, it is necessary to take into account their features, as well as pay attention to liquidity, which is usually lower than in the case of classic securities.

Chasing the stakes

After a steady decline and renewal of the local minimum in April, the yield of short government bonds this week fixed in the range of 7.3-8.3% per annum. Over the week, yields rose by an average of 5 basis points (b.p.), since the beginning of the month, the increase was about 20 bp. The rise is taking place against the backdrop of tougher rhetoric from representatives of the Bank of Russia, who are increasingly talking about a possible rate hike. “As a rule, the Central Bank raises the key rate due to high current or expected inflation, which leads to an increase in yields and a decrease in prices of classic OFZs with a constant income,” says Nikolay Ryaskov, head of the bond department at Ingosstrakh-Investments Management Company.

Bonds with a floating coupon (floaters) can act as protection against a possible change in the monetary policy of the Central Bank.

The most famous and numerous floaters are government bonds with a variable coupon (OFZ-PK). Their coupon rate depends on the RUONIA rate (the average rate at which the largest Russian banks issue loans to each other for one day). For issues issued in December 2014, the coupon rate is determined as the average value of the RUONIA rate for the previous semi-annual coupon period, increased depending on the issue by 120–160 bp. “For the rest of the issues, the start of placement of which falls on 2020–2023, the coupon income is calculated based on the average value of RUONIA rates for the current quarterly coupon period with a time lag of seven calendar days,” explains the chief debt markets analyst at BC Region » Alexander Yermak. According to him, in total, OFZ-PK is circulating on the market for almost 7 trillion rubles. (37.1% of the total volume of ruble government bonds).

Government bonds are available for purchase even to unqualified investors without testing. At the same time, as Maxim Chernega, head of the DCM department of the corporate finance department at Tsifra Broker, notes, such securities can be bought both at secondary auctions (“in the order book”) and at primary placements (auctions). True, this year the Ministry of Finance very rarely offers such securities. The only placement took place on May 3, when, with demand of about 261 billion rubles. bonds were placed for 75.5 billion rubles.

corporate diversity

However, such debt securities are offered to investors and corporate borrowers. According to Alexander Yermak, there are 160 issues of floating-coupon corporate bonds (FC) on the market for a total of 4.3 trillion rubles. They use not only the RUONIA rate, but also the key rate of the Bank of Russia, inflation, and in some cases the inflation rate and GDP growth rates, or the inflation rate and the Central Bank key rate as a binding of the coupon rate. At the same time, the most popular benchmark, according to Mr. Yermak, is the key rate of the Bank of Russia, which accounts for almost 77% of all corporate floaters.

At the same time, in recent months, companies have become more likely to issue debt securities pegged to the RUONIA rate.

According to Alexander Yermak, since the end of last year, four such issues have been placed for 192.4 billion rubles. In particular, last week Rosselkhozbank completed the collection of applications for three-year bonds for 15 billion rubles, the coupon for which was set at RUONIA + 150 bp. n. Taking into account the fact that the RUONIA rate for the first coupon was 7.16% per annum, as a result, the total rate was 8.66% per annum. In the coming week, Norilsk Nickel MMC will place similar securities in the amount of at least 30 billion rubles. with semi-annual coupon. According to Mr. Yermak, the premium for such securities was 130-200 bp. items for issues of the first and second echelons.

Currency floaters also circulate on the market. The exchange features a type of CNY-denominated bonds totaling CNY 9 billion, the coupon rate of which is pegged to the China Loan Prime Rate (LPR) 1Y (set by the People’s Bank of China) at a premium of 10-120 bp. etc., said Mr. Yermak.

Attention to rating

Unlike OFZ-PK, only high-quality issuers (with AAA rating) are currently available to unqualified investors without restrictions. Issuers with a lower credit rating will require testing. According to Ruslan Nikolenko, asset manager at BCS Mir Investments, the placement of RSHB floating-rate bonds included such a requirement.

In addition, investors should take into account the fact that the liquidity of such securities is usually lower than that of classic bonds. According to Alexander Yermak, since the beginning of the year, the volume of transactions with OFZ-PK amounted to 362 billion rubles, and with OFZ-PD – 807 billion rubles. “Given the protective nature of such securities, they are usually bought into a portfolio to maturity,” he explains.

The disadvantage of such investments will be lower predictability of future returns.

At the same time, as Maxim Chernega notes, floaters linked to the Central Bank rate are more predictable in terms of future changes in the coupon rate than OFZ-PK.

At the same time, like classic bonds, such securities are subject to the risk of price changes. “Floaters are supposed to be trading near par. However, there is a certain lag in the formation of quotes. Accordingly, investors should take into account that at the moment there may be a small drawdown in profitability and a small change in price,” Maksim Chernega notes. In addition, when the Bank of Russia moves to lower the key rate, the interest of market participants in such securities may greatly weaken, Ruslan Nikolenko draws attention.

Vitaly Gaidaev