The Ministry of Finance reported on holding the first auction in 2023 for the sale of government debt – federal loan bonds (OFZ) with a constant coupon income. The results of the auction turned out to be weaker than expected by the Ministry of Finance: the department had to pay a substantial premium in order to attract investors. Kommersant drew attention to the problems with attracting financing through public debt.
During the first auction in 2023, the Ministry of Finance offered investors two types of securities: OFZ maturing in November 2032 and in July 2036. The total demand for securities amounted to 129.2 billion rubles, and the total placement volume was only 40.5 billion, which was the lowest result since September 2022. The yield on ten-year securities amounted to 0.24% per annum, and on 13-year ones – 10.32% per annum. The publication cites the opinion of Alexander Yermak, chief analyst of debt markets of BC Region, who notes that in order to meet even such a small demand, the Ministry of Finance had to raise the rate on securities. The premium on 10-year bonds was 10 basis points (0.1 percentage points), and on 13-year bonds it was 9 bp, or 0.09 percentage points.
Experts note that at the first auction, the Ministry of Finance wanted to test the market’s readiness for buying securities with a constant coupon, since the Ministry of Finance raised the bulk of borrowings in the fourth quarter of 2022 (3.14 trillion rubles, or 80%) with the help of OFZs with a floating coupon, which used in particular demand from banks and large players. However, the experiment, according to analysts, failed: the market understands that the state is in a rather difficult position and, lending to it, wants to receive a significant risk premium.
“Investors are cautious in increasing their interest rate risk due to the recent increase in inflationary risks,” Igor Rapokhin, senior debt market strategist at SberCIB Investment Research, is restrained in his assessments.
Last year, the Ministry of Finance was forced to resort to record loans to cover the budget deficit that had grown at the end of the year. At the beginning of this year, it makes no sense for the Finance Ministry to rush to increase loans, but the market understands that in the face of reduced oil and gas revenues, loans are one of the key sources of money for the Finance Ministry. Under these conditions, it makes no sense to rush to buy securities, since in case of urgent need, the Ministry of Finance will return to the markets with securities with a floating rate, which are much more attractive for large players.
Large players account for up to 90% of securities purchases. Yermak notes that 6 large deals worth 1–5 billion rubles accounted for 70% of the total volume of OFZ placements, and in the case of longer bonds, deals worth 1–7 billion rubles accounted for 98%. Earlier, analysts told The Insider that the increase in public debt will remain the main source of funds to finance budget expenditures. Experts noted that the Ministry of Finance could borrow up to 3 trillion rubles a year for the next 10 years and this does not pose serious risks in the near future, however, too high lending creates risks for financial stability in the future.
