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Wednesday, March 21, 2018

The ability to lend the state promises to be profitable

This year, the Ministry of Finance promises to offer the public a new tool for investment – the so-called Federal loan bonds (OFZ). In other words, with the help of special securities every citizen will be able to give to the state in debt – and, of course, capitalize on this. The state solves this problem of the budget deficit, but citizens will be able to make a profit.

The Ministry of Finance until the end of 2016 plans to issue Federal loan bonds (OFZ) for the population, said Minister of Finance Anton Siluanov in Moscow financial forum on Friday.

“The state may in a few years to attract 1 trillion rubles from the population by selling OFZ”

“This year will issue bonds to the public, which may be of interest to our citizens. I believe that in addition to the usual tools of keeping money they can invest in government bonds, which will be more profitable than deposits. Therefore, we are expanding the range of our tools”, said Siluanov.

On the eve of Russia has successfully placed $ 1.25 billion in foreign markets, selecting the entire set a budget limit external borrowing 3 billion dollars for this year. Russia could take much more abroad, but, apparently, and in 2017 will be installed in the same or a slightly higher limit for issue of Eurobonds.

In the end, the government decided to go the way of the expansion of domestic borrowing. In 2017, the Ministry of Finance to increase internal borrowing 3.5 times compared to this year. “See that the market is ready for such volumes,” – said Siluanov. The total amount of the domestic borrowing program of the Ministry of Finance for 2016 is 802 billion.

The idea is to borrow the population appeared in the last year. The Finance Ministry noted that the bonds for the population should have a special procedure for placement and circulation given the fact that citizens are not professional participants of the financial markets or sophisticated investors. To purchase BFL, the population will be able to only state-licensed professional participants of the securities market. It was also reported that in 2016 the total volume of OFZs in the amount not exceeding 30 billion rubles. Thus for several years the state can borrow from the public by selling government bonds for about 1 trillion rubles.

Usually bonds are issued for a term of one to ten years, sometimes more. For the population, the Ministry of Finance is likely to offer the bonds for a period from one to five years, says Roman Tkachuk from Alpari. Probably bonds to the population will be for a period of more than five years to not compete with the proposals of banks on deposits, says financial analyst FxPro Alexander Kuptsikevich.

There are different types of OFZs with fixed coupon, variable coupon, debt amortization, etc. Traditional for a bond face value – 1000 roubles. Perhaps for the population of the state will create the purchase threshold OFZ – from 100 papers, says Tkachuk. That is, to acquire the BFL will be in the amount of 100 thousand rubles.

It is most likely that at first they can be purchased at branches of state banks – Sberbank, VTB, etc., in the future the program can join and other banks. The first releases will be “trial”, then, if this tool will be a demand from the population will placed additional issues,” – said the expert.

In fact, the OFZ is an alternative to Bank deposits tool of preservation of savings and investment. Experts agree that bonds can be a more profitable tool for the population.

Bonds are more profitable than deposits since lost the extra link in the form of retail banks. Plus a higher yield of “national” bonds can provide a more long term placement” – says Kuptsikevich.

So, banks offer deposits for one to three years with a yield of 8.3%, while bonds in this period will provide the yield from 8.3% to 10.2%, and longer papers for a period of 10 years, the yield kept above 10.5%, he adds.

“Now the yield on the exchange of OFZs with fixed coupon is about 8-9%. Probably a similar return offer on FB and population. This is higher than the yield of deposits of state-owned banks, but slightly lower than that of commercial banks,” says Tkachuk.

Unlike bonds, deposits to 1.4 million rubles insured by the Deposit insurance Agency, that is, in the case of bankruptcy, you will return the contribution. Bond is no Deposit insurance system, but here the guarantor is the state itself. Risks on FB is lower than on deposits, since the probability that an event of default of the state, lower than bankruptcy of any Bank.

An important difference of the bonds of the deposits is that they can buy and sell at any time without losing accrued coupon payments. “However, there is a risk of falling into unfavorable market conditions, when to sell the bond you will have is cheaper than buying. But overall it is a much more flexible tool, though with some uncertainty,” – says Kuptsikevich.

If you compare with the other tools of investment, investments in real estate over the past three years has lost its appeal. “It was one of the most profitable tools, but in 2014 the real estate market is stagnant – the prices do not grow, there is no effective demand. Many investors who previously invest in real estate, are looking for alternative options to invest. One of them may well be BFL,” – said Tkachuk. In addition, the purchase of real estate requires much more funds than the purchase of government bonds.

“If you believe that the Central Bank will be able to radically suppress inflation, current yield on bonds looks more attractive. Here, the same laws that the deposits: the lower the inflation, the lower the yield of deposits and bonds. Here the investor can win from both coupon income and price difference: it grows as the profitability” – says Kuptsikevich.

More lucrative investment option is the stock and currency markets, but here above is not only profitability but also risks. OFZ – more predictable investment.

“In personal Finance, I like this rule: the proportion of bonds, the investor should be equal to his age. The rest of the stock. However, soon to be even more careful and keep the money in the Bank, yet the yields there are higher Deposit and your priority is full assurance of refund in time. But very soon we will be back to the usual (and at us, and worldwide) conditions, when the Deposit helps only partially to recapture the loss in purchasing value of money due to inflation. Then the interest in such BFL will grow”, – says Alexander kuptsikevich.

But at first the program OFZ for the population may stall. First, because of the low financial literacy of Russians, and many after 1991 and 1998 still wary of new investment instruments. “Many of the old-fashioned way easier to open a Deposit, so a lot will depend on how to be “filed” and the Ministry of Finance advertised a new tool. But as recognizing its popularity will increase,” – said a senior expert of “Alpari”. Therefore, the state may for several years to attract 1 trillion rubles from the population by selling OFZs, he said. For comparison, the volume of the market of ruble deposits now is about 17 trillion.

Due to the era of low oil prices the Russian budget has problems. The Finance Ministry is trying to find different opportunities in order to Supplement the budget. In the course of going as reserves, external loans and privatization. However, the latter was postponed, as the authorities do not want to part with Bashneft, and Rosneft for a penny, and the market conditions today are not conducive to the sale of state-owned.

Finally, the Finance Ministry decided to develop the market of internal ruble debt. The Director of analytical Department of “Alpari” Alexander Razoavel believes it is the right and best option, because at least the problem of internal debt can always be solved via the printing press. It is clear that it is better not to bring, but from the point of view of national security to get into bondage to Western creditors more dangerous. And, of course, loans in rubles will provoke an additional demand for rubles. “Interest rates in the world right now is about zero. To borrow money on the international market and to buy the Russian debt is not very tricky, but very profitable strategy. Work so many international funds”, – tells Alexander Razuvaev.

Finally, the placement of OFZ and the increase in loans is a far better option than tax increases or spending of reserve funds. At the moment the volume of the OFZ market is about 5.5 trillion roubles (of which about 25% from non-residents) is less than 7% of GDP. In comparison with developed countries is low, and the service of such a debt should not cause problems at the Finance Ministry, concludes the novel Tkachuk.


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