OFZ or Corporate Bonds: Which is More Beneficial for Retail Investors
1. Yield and Income Calculation
1.1. Coupon Income and YTM
The primary source of income from bonds comes from coupon payments – periodic interest from the nominal value paid by the issuer. Yield to Maturity (YTM) reflects the annual return up to maturity, taking into account all coupons and the difference in purchase price. Investors can utilize YTM online calculators or trading platform tools to quickly forecast yields and compare several issues simultaneously.
1.2. Nominal and Real Yield
Nominal yield refers to the coupon rate, for instance, 8% per annum. Real yield = nominal yield – inflation. If inflation stands at 5%, then the real return on a bond with an 8% coupon will be approximately 3%. OFZ with a floating coupon tied to the Central Bank's key rate will automatically adjust yield, preserving the investor's purchasing power.
1.3. Practical Calculation Example
Suppose you purchased OFZ-26207 with a 7% coupon and a YTM of 7.5%. With a nominal value of ₽1,000, you will receive ₽70 in annual coupon payments, while the additional yield of 0.5% is generated by acquiring the bond below nominal value or selling it at a premium. Overall, over three years, an investor can earn around ₽225 without reinvesting the coupons.
2. Risk and Reliability
2.1. Sovereign Guarantee Fund
OFZ are issued by the Ministry of Finance of the Russian Federation and are considered virtually risk-free, as the government is obligated to repay the debt. During crisis periods, demand for OFZ increases, confirming investors' trust in government bonds. By comparison, in 2022, the turnover of OFZ on the Moscow Exchange grew by 30% amid geopolitical turbulence.
2.2. Credit Risk of Corporations
Corporate bonds exhibit varying levels of risk depending on the financial health of the company. Issuers in the oil and gas sector pay coupons above 10%, but are dependent on commodity prices. Bank corporate bonds rated "ruBBB" offer coupons of 8-9% and have low volatility due to regular cash flows.
2.3. Diversification of Credit Risk
To mitigate default risk, investors should distribute their investments between OFZ and corporate bonds across different sectors. For example, keeping half of the portfolio in OFZ and the remaining portion in high-rated papers from the telecommunications, real estate, and energy sectors.
3. Tax Aspects and IIS
3.1. Benefits on Coupon Income
Through the Investment Account for Individual Investors (IIS) with deduction type A, an individual investor can reclaim up to ₽52,000 in personal income tax annually when investing up to ₽400,000 in OFZ and corporate bonds. This equates to an increase in yield by 13% on the coupon income, which is particularly appealing for long-term investments.
3.2. Special Conditions for Corporate Securities
On the IIS, corporate bonds are also exempt from personal income tax. However, it is important to adhere to the investment limit of ₽1 million per year. Exceeding this amount results in the annulment of tax benefits for the entire amount, therefore investors should plan their investments, spreading them evenly across years.
3.3. Tax Optimization Tactics
Investors often utilize a combination of IIS and brokerage accounts: allocating some funds to bonds in the IIS to obtain deductions, while directing the remaining capital to a brokerage account for greater flexibility in amounts without deduction limits.
4. Liquidity and Trading
4.1. Real Trading Operation Stories
At the beginning of 2025, investors significantly shifted towards OFZ issues following the Central Bank's decision to raise the key rate. The average daily trading volume of OFZ-26224 exceeded ₽45 billion, and the spread tightened to 0.01%. During this time, the average turnover of smaller corporate bond issues was merely several dozen million rubles, complicating entry and exit from positions.
4.2. Entry and Exit Tactics
For large investments, it is advisable to use "market orders" during peak activity hours (10:00–12:00). Smaller investors may prefer limit orders, setting prices slightly above ("bid") or below ("ask") the average market to minimize the impact of the spread and commissions.
5. Maturity and Duration
5.1. Portfolio Management Tactics
If an investor anticipates rising rates, shifting investments into shorter issues reduces losses from declining prices. Conversely, if a decline in rates is expected, extending duration is advisable: long OFZ-26225 with a 7% yield can appreciate more than 3% if the key rate is lowered by 1 percentage point.
5.2. Duration Impact Example
A portfolio with a duration of 7 years tends to lose approximately 7% of its price when the rate increases by 1 percentage point, while it gains the same amount when the rate decreases. A duration management model aids in balancing risk and return depending on macroeconomic expectations.
6. Credit Ratings of Issuers
6.1. Information Sources
Ratings can be found on the websites of agencies such as Moody’s, S&P, Expert RA, and ACRA, as well as in the analytical sections of brokers. Utilize opinions from various agencies for a comprehensive understanding of risk.
6.2. Examples of Corporate Issuers
Oil and gas companies "Lukoil" and "Gazprom Neft" regularly attract investor attention with high ratings of ruAA and coupons of 8-9%. Banks "Sber" and "VTB" offer low volatility due to robust cash flows and ratings of ruAAA.
7. Legal Support and Prospectus
7.1. Where to Find Prospectuses
Prospectuses are published on issuer websites and in the "Issuers" section of the Moscow Exchange. It is crucial to verify the presence of an updated version ("corrective prospectus") to account for changes in issuance terms.
7.2. Prospectus Analysis Practices
When reading a prospectus, pay close attention to sections like "Credit Security," "Early Redemption Conditions," and "Issuer Responsibility." These points contain information regarding collateral, opportunities for early buyback, and penalties in case of default.
8. Comparative Analysis of OFZ and Corporate Bonds
8.1. Mathematical Comparison of Yields
OFZ: coupon 7% + exemption from personal income tax on IIS = effective yield ~7.9%. Corporate bonds: coupon 10% – 13% personal income tax → net yield ~8.7%. However, when factoring in spreads and default risks, implied yields may decrease to 8%.
8.2. Behavioral Psychology of Investors
Retail investors tend to overestimate the potential of high-yield instruments while underestimating the risk of default. When seeking to enhance yields, it is essential to combine instruments from different classes and avoid excessive concentration in speculative papers.
8.3. Strategy Adaptation Advice
An optimal portfolio for a beginning investor: 50% OFZ (via IIS), 30% corporate bonds rated from ruA, and 20% short-term issues (1-2 years). With improvements in macroeconomic conditions, the proportion of corporate papers can be increased.
9. Practical Advice for Investors
9.1. Setting Investment Goals
Determine time frames and goals: saving for retirement, creating an emergency fund, or achieving a yield above 8% per annum. This will influence the choice of instruments and rebalancing strategy.
9.2. Diversification and Risk Management
Separate your portfolio between OFZ, investment-grade corporate bonds, and short-term issues to mitigate credit and interest rate risks. Employ stop orders and limit orders to automate operations.
9.3. Market Monitoring and Portfolio Revision
Every 3-6 months, analyze changes in key rates, credit ratings, and trading volumes. Adjust the shares of instruments as needed to maintain the desired level of risk and return.
9.4. Utilizing Professional Resources
Subscribe to reviews from bank analysts and rating agencies, participate in exchange webinars, and read specialized reports. Use timely data for prompt decision-making and to maintain portfolio effectiveness.
