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1460 1360 1260 1160 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) In May of 2004, the amount of payments pertaining to the public foreign debt of the Russian Federation was US $ 2.5 billion. This, in turn, included US $ 104.1 million paid to official creditor countries, banks, and firms as debt repayment and interest payments (including US $ 90.4 as debt repayment and US $ 13.7 as interest payments). In May, payments to international financial organizations made US $ 107.3 million (including US $ 102.6 as debt repayment and US $ 4.7 as interest payments). Besides, in May more than US $ 2 billion were transferred for repayment of bonds relating to the domestic public forex denominated loan (OVGVZ) and US $ 265 as cashing of coupons. Russia paid about US $ 5.6 billion in January through April, while the total amount of Russias payments relating to the foreign debt should make about US $ 17.3 billion this year.

P. Trounin billion rubles billion dollars 3-9.2.1-7.09.2-8.03.4-10.08.9-15.12.6-12.01.18-24.08.15-21.09.13-19.10.11-17.11.23-29.12.20-26.01.17-23.02.16-22.03.13-19.04.11- Markets In May of 2004, on the Russian financial market there was observed a general worsening of the business situation. The expected rise of interest rates in the USA not only affected the markets of public and corporate debts, but also facilitated a reduction of demand for Russian securities on the part of nonresidents. Political risks also increased (the further development of the situation relating to the YUKOS affair), although they did not influence the markets so much as earlier. High oil prices and favorable macroeconomic situation in the country have partially supported the quotations preventing their further decline.

The Market for Government Securities As concerns the general situation in May, there was observed a decline in quotations of Russian forex denominated bonds. Nevertheless, the respective dynamics were unstable. Thus, the first week after the holidays was characterized by a decline in quotations of Russian bonds, which was to a considerable extent caused by the dynamics of US debt securities. The growth in the yields of US treasury bills occurring at the background of publication of employment situation data, which considerable differed from the forecasts and confirmed the apprehension of a soon increase in the discount rate, facilitated the rise in yields. However, the macroeconomic data published later in general corresponded to forecasts, what investors on the US market regarded as an evidence indicating the possibility of impending increase in the base rate (June July) and resulted in the growth in prices. Accordingly, the quotations of Russian securities also increased. An additional factor of support of the Russian segment of Eurobonds was that S&P agency increased its ranking of Kazakhstan to the investment level, what was apprised by the market as an evidence of the soon increase in the Russias ranking.

Thus, as on May 21 the yield to maturity of Russian Eurobonds RUS-30 was 8.14 per cent p.a. (end of April: 7.97 per cent); RUS-18: 7.89 per cent p.a. (end of April: 7.53 per cent). Besides, on the same date the yield to maturity of the Russian Eurobonds was: Minfin bonds, 7th tranche: 7.39 per cent; Minfin bonds, 6th tranche: 5.04 per cent; Minfin bonds, 5th tranche: 6.57 per cent; RUS-07: 5.30 per cent.

Figure Minfin bonds' yields to maturity in February - May, 8.0% Tranche 5 Tranche 6 Tranche 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in February - May, 8.5% 7.5% 6.5% 5.5% 4.5% 3.5% 2.5% USD-2030 USD-2007 USD-A decline in prices was also observed on the market of Ruble denominated public debt. Over the first week after the holidays there was registered a downfall in prices across practically all issues of GKO OFZ.

High MIBOR rates and the US dollar appreciation facilitated a decline in prices of Ruble denominated instruments. The second working week was characterized by a partial growth in quotations at the background of Ruble appreciation. However, the increase in the rates on the inter-bank credit market limited demand, what did not permit prices to significantly adjust upward.

Over the period from May 1 to 21, the aggregate turnover of the secondary GKO OFZ market made about RUR 18.3 billion, while the average daily turnover was at RUR 1.67 billion (in April, the respective indicator was registered at RUR 1.8 billion). In the same period, there took place only one auction for the placement of GKO OFZ. On May 19, there took place the auction for the placement of OFZ AD 46003, the nominal value of which made RUR 5 billion. The amount of the placements made RUR 1.08 billion, while the weighed average yields of the placements were at 7.68 per cent per annum. As on May 26, the amount of the GKO OFZ market made RUR 472.5 billion at par and RUR 453.41 billion at the market value. The duration of the GKO-OFZ market portfolio was 1621.42 days.

The Market for Corporate Securities Situation on the stock market.

In May, on the Russian stock market there was observed opposite trends of quotations. In the beginning of the month, during the holiday trade week, the market continued its downward movement, and the RTS index made 576.63 points by May 11. The internal factors behind this downfall were the worsening of the liquidity situation in the banking sector and the further development of the situation concerning the YUKOS affair6, while external factors were the apprehension of the soon increase in the base rates in the USA and the dynamics of foreign quotations of Russian ADR and GDR. However, over the next two weeks the RTS index increased somewhat and On May 19, the company received the second notification of the creditor concerning the possible default on the preexport credit amounting to US $ 1.6 billion. On May 26, the Moscow Arbitration Court ruled to recover from the NK YUKOS RUR 99 billion in taxes, penalties, and fines for year 2000. According to the statement made by the company, further similar actions on the part of the Tax Ministry may result in the companys bankruptcy by the end of 2004. at 610 to 630 points. The positive adjustment was caused by low prices of the majority of blue chips, as well as a number of positive corporate news. In spite of numerous negative factors, record high oil prices continue to support the market preventing its further decline.

It should be also noted that in May creditors addressed YUKOS the second notification of possible default, the companys headquarters were searched, and the Arbitration Court ruled to exact the companys debt relating to tax payments. However, the development of the situation concerning YUKOS has much lesser impact on investors intentions and, as a result, does not cause a significant downfall of quotations on the market.

Figure 3.

90 800.The total volume of trading ($) 80 750.The RTS Index 70 700.60 650.50 600.40 550.30 500.20 450.10 400.350.According to the data as on May 26, the RTS index made 629.99 points, what was by 1.12 points (0.18 per cent) below the value of this indicator registered at the end of April. In the period from May 5 till 26, the turnover of the RTS trading amounted to about US $ 340 million, while the average daily turnover at the RTS made about US $ 22.69 million (about US $ 37 million in April). The highest and the lowest volumes of trade at the RTS made US $ 32.5 million (on May 17) and US $ 12.4 million (on May 6), what was significantly below the figures registered in April (US $ 71.6 million and US $ 15.5 million respectively).

Over the last month (from April 23 till May 26), all blue chips with the exception of LUKoil (a 1.24 per cent growth), Sberbank of Russia (a 1.00 per cent growth), and Surgutneftegaz (a 0.2 per cent growth) demonstrated a significant downfall in prices. Thus, shares in NK YUKOS became leaders in terms of decrease in prices (-25.8 per cent) as a reaction to the further worsening of the companys situation. The YUKOS shares were followed by the stocks of the RAO UES of Russia and the GMK Norilsk Nickel (-12.25 per cent), and shares in Sibneft (-5.79 per cent). At the same time, the shares in Rostelekom, Mosenergo, and Tatneft fell by 9.21 per cent, 6.31 per cent, and 6.01 per cent respectively.

points mln US dollars s 4.

Dynamics of the Russian Blue Chips from April 23 to May 26, 5% 0% -5% -10% -15% -20% -25% -30% Change in price (%) In the period from May 5 till May 21, the RAO UES of Russia shares took the top position by the volume of turnover in the RTS7: the share of respective transactions amounted to about 30.92 per cent of the total turnover. The amount of transactions with the shares in the LUKoil was somewhat lower (23.23 per cent).

The shares of YUKOS and Surgutneftegaz followed: the volume of transactions with these companies shares made 11.47 per cent and 5.95 per cent of the total turnover respectively. Thus, the aggregate percentage of transactions with the shares of only these four companies made about 71.58 per cent of the total traded turnover over the period of time under observation.

As on May 26, the top five leaders of the national stock market by capitalization looked as follows8:

YUKOS: US $ 26.65 billion; LUKoil: US $ 24.75 billion; Surgutneftegaz: US $ 24.68 billion; Sibneft: US $ 13.27 billion; MMC Norilsk Nickel: US $ 13.16 billion.

The market for fixed term contracts. In May, the activity of investors on the RTS market for fixed term contracts (FORTS) practically did not change in comparison with the preceding month. Thus, in the period from May 5 till 26 the volume of trade in futures and options at the RTS amounted to about RUR 20.6 billion (102.1 thousand transactions; 2.77 million contracts), what was at the same level as the respective indicators registered in the preceding month (turnover - RUR 23.28 billion, 98.9 thousand transactions; 2.67 million contracts).

As usual, futures contracts account for the greatest percentage of transactions: the volume of trade in these contracts made RUR 18.65 billion (2.5 million contracts, 98.68 thousand transactions) over the period under observation. As before, options were in a much lower demand: the respective amount of trading made about RUR 1.96 million (244 million contracts, 3.3 thousand transactions). The maximum trading volume was observed on May 19 and made RUR 1.95 billion, while the minimum trading volume (RUR 829.96 million) was registered on May 5.

Corporate bond market. Over the month, the downfall in prices on the market of corporate bonds continued. From April 30 till May 26, the price index of corporate bonds traded at the MICEX9 decreased by 1. On the classical stock market.

According to the RTS.

The indices of corporate bonds traded at the MICEX that have been used for the calculations are calculated by Zenit Bank.

Ukos Sibneft Tatneft GMK LUKoil Russia Russia NorNikel RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas points (by 0.96 per cent) and the index of ten most liquid corporate sector bonds decreased by 1.06 points ( by 0.92 per cent).

The decrease in the prices of corporate bonds observed in the beginning of the month was mainly caused by the US dollar appreciation in comparison with the Ruble and low liquidity in the banking sector. However, the low price levels resulted in an increasing demand for corporate bonds. Among positive factors affecting the price dynamics, there should be also mentioned the decreasing yields of US bonds. At the same time, Russian bonds of the second echelon continued to fall, what was caused by the extremely low level of liquidity on the market.

In the period from May 5 till 21, the total turnover in the bond sector of MICEX made about RUR 3.5 billion, while the average daily turnover was registered at RUR 288 million, what was significantly below the indicators registered in April of this year.

Figure Dynamics of corporate bond indices ZETBI-Corp ZETBI-CorpExternal factors affecting the dynamics of the Russian stock market.

Throughout the month, the prices on the world oil markets continued to grow. Thus, in the period from April 30 till May 26 of 2004, the price of Brent oil on the world market increased by US $ 3.82 (+ 11.02 per cent)10, from US $ 34.65 per barrel to US $ 38.47 per barrel. At the same time, the oil prices in the USA exceeded the level of US $ 40 per barrel and reached the 20 year maximum. The major factors behind the positive dynamics of the world oil prices remained shortage of gasoline reserves in the USA, growing oil consumption in China, and instability in the Middle East.

The calculations were based on the data presented by the weekly newspaper Vedomosti. 6.

Dynamics of Brent Oil Figure 7.

210% Dow Jones Industrial Average Nasdaq Composite 190% The RTS Index 170% 150% 130% 110% 90% 70% 50% In May, on the world stock markets there was observed a decrease of the market indices. At the same time, the levels registered as on May 26 caused the indicators of the dynamics since the beginning of the year to dollars per barrel negative values (see Table 1). The worsening business situation on the world stock markets was primarily caused by extremely high oil prices, which could negatively affect the rates of development of the world economy, as well as by the situation in the US economy (the possibility of increase in the base interest rate and the deteriorating situation in the Middle East, in particular, in Iraq).

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