OFZs (Federal Loan Bonds) are a popular investment tool selected by experienced market participants. The Ministry of Finance regularly conducts auctions to issue these securities. But who can participate in these auctions, and what makes Federal Loan Bonds appealing?
Sergey Tereshkin, the founder of OILResurs, is ready to help unravel this investment instrument. A businessman who closely monitors in-demand sectors and delves into all the details. More information about the entrepreneur is recommended to be obtained on his personal web portal: sergeytereshkin.ru (сергейтерешкин.ру).
Features of OFZs
Auctions for the sale of Federal Loan Bonds are predominantly held every few weeks. This allows government agencies to swiftly manage liquidity.
The share of securities sold on the market annually currently amounts to nearly 2.5 trillion rubles. Non-residents occupy about one-third of the market. However, the decline in oil prices and imposed sanctions have negatively impacted placement volumes.
An auction for the sale of OFZs can either be successful or not. In this regard, there is no difference from any other trades. If the lot price does not satisfy the seller, they have the option to retract their bid.
Yet even under favorable circumstances, there is no guarantee that investors will purchase the entire volume of the securities presented. In case of partial buyouts, the auctions are considered successful. At the same time, it is difficult to call the auction a success.
The demand for OFZs and the interest rate influence the exchange rate of the national currency. The more stable the indicators, the better it is for the country's credit rating. The national currency strengthens, enhancing the market's attractiveness in the eyes of major investors.
In favorable market conditions, corporate companies have the opportunity to issue their securities advantageously.
Under high OFZ interest rates, minimal demand, or complete absence thereof, as well as auction cancellations, there exists a risk to the market as a whole. Such symptoms signal to investors that the situation is unstable, and investing at this time may not be wise.
The market can also exert influence on the outcome of trades. For this, several factors must align simultaneously. These include:
- Investor activity on foreign exchanges;
- Rising oil prices;
- Stability in the Federal Reserve's interest rate;
- Rating confirmations by world-renowned agencies, etc.
Currently, the Ministry of Finance has decided to implement the practice of selling securities without quantity restrictions, thereby stimulating demand. At the same time, the market is not pressured by unsold lots.
Additionally, a significant number of securities fosters increased appetites among investors. Many demand higher rewards, thus putting pressure on government entities.
In the absence of information regarding volume and its maximum limit, manipulations are kept to a minimum. However, it is important to understand that this approach can provide only a short-term effect.
Investors will quickly realize that the actual number of offerings is unlimited. As a result, it is unlikely that anyone will rush to acquire securities right now.
Features of Securities Auction Trading
Government securities are issued by the Ministry of Finance and subsequently listed for auction on the Moscow Exchange, which takes place on designated weekdays. Anyone interested can review the issue plan.
All trades are accompanied by comprehensive information. Thus, a potential investor can obtain the following data:
- Auction regulations;
- Information about the issuance;
- The bid placement mechanism.
Additionally, users can access information about previous trades:
- Volume of offerings;
- Demand;
- Minimum purchase amount;
- Yield, etc.
Weekly, several issues of OFZs are proposed on the exchange. All have varying maturity dates, and the nominal values can also differ substantially. They can be either fixed or indexed.
OFZ coupons may be either fixed or variable.
Auction Conduct
The auction for securities trading is similar to any other type of trading. The trading mechanism unfolds as follows:
- Lot listing for auction;
- Acceptance of bids from investors;
- System selection of the winner making the highest bid.
Additionally, the issuer sets a minimum threshold below which they are unwilling to sell the securities.
Can Private Investors Participate in Auctions?
Any investor can participate in the auction. This offers a great opportunity to secure additional income. To gain access to trades, one must contact an investment company or a banking institution acting as a broker.
However, many refuse to cooperate with small investors purchasing minor lots. The operational costs may simply prove unprofitable for the broker. Consequently, potential investors may need to seek another organization. Brokers prefer to work with large depositors who are willing to invest tens of millions of rubles in securities.
To find a broker willing to cooperate, merely calling is not enough. Tereshkin S.I. recommends personally visiting the office and discussing with the managers.
If the intended investment amount is small, suitable offers can be sought in the secondary market.
Before acquiring OFZs, it is advisable to monitor the auctions for some time. Auction results serve as a litmus test for the entire market. Thus, one can not only predict the value of the securities and the corresponding interest rates but also the future ruble exchange rate. This approach allows for profit from both securities and currency trading.
