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In the beginning of the month, across all segments of the financial market there was observed a deterioration of market situation at the background of liquidity problems in the banking sector, as well as mounting tensions relating to the YUKOS affair. However, after V. V. Putin made a statement that the government was not interested in the bankruptcy of the company, the stock market reacted with a rise in quotations, which compensated for a significant part of the preceding decline. A growth in quotations was also observed on the market of debt instruments. By the end of the month, negative trends again dominated the market, what resulted in a decline in stock indices. It should be noted that in spite of official statements favorable for YUKOS, high political risks still persist on the Russias markets.

The Market for Government Securities In June, on the market of Russian forex denominated bonds at large there was observed a decline in yields of traded securities. As before, the market of Russian forex denominated debt reacted to the changes in the benchmark of all debt markets, i.e. yields of US treasury bills. Over the whole month, there was observed positive dynamics of quotations, which followed a certain decline due to the uncertainty concerning the YUKOS affair, as demand for Russian bonds on the part of nonresidents grew.

Thus, as on May 25 the yield to maturity of Russian Eurobonds RUS-30 was 8. 09 per cent p.a.;

RUS-18: 7.81 per cent p.a. Besides, on the same date the yield to maturity of the Russian Eurobonds was: Minfin bonds, 7th tranche: 7.47 per cent; Minfin bonds, 6th tranche: 4.91 per cent; Minfin bonds, 5th tranche: 6.59 per cent; RUS-07: 5.27 per cent.


Minfin bonds' yields to maturity in March - June, 8.0% Tranche 5 Tranche 6 Tranche 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% FIGURE 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in March - June, 8.5% 7.5% 6.5% 5.5% 4.5% 3.5% 2.5% USD-2030 USD-2007 USD-As concerns the segment of Ruble denominated public bonds, in June there also prevailed downward trends in quotations. Yields of securities increased at the background of extremely low activity of investors in comparison with the market of corporate debt and limited liquidity in the banking sector. the period from June 1 to 24, the aggregate turnover of the secondary GKO OFZ market made about RUR 26.85 billion, while the average daily turnover was at RUR 1.58 billion (in May, the respective indicator was registered at about RUR 1.67 billion). In the same period, there took place several auctions for the placement of GKO OFZ. On June 2, there took place the auction for the placement of OFZ FD 27025 the nominal value of which made RUR 4 billion. The amount of the placements made RUR 868 million, while the weighed average yields of the placements were at 6.71 per cent per annum. On June 3, there were held auctions for additional placement of OFZ AD 46003 and OFZ FK 27025, the nominal value of which made RUR 1.5 billion each. The amount of the placements made RUR 224.5 and 938.7 million respectively, while the weighed average yields of the placements were at 7.58 per cent and 6.66 per cent per annum. As on June 25, the amount of the GKO OFZ market made RUR 459.48 billion at par and RUR 438.2 billion at the market value. The duration of the GKO-OFZ market portfolio was 1650.76 days.

The Market for Corporate Securities Situation on the stock market Early in the month, on the market there continued a decline in quotations. Pessimism of investors based primarily on the further deterioration of the YUKOS situation, as well as a significant decline in liquidity in the banking sector. The crisis of confidence on the market of inter-bank credits was caused by the events relating to Sodbusinessbank and Credittrust. The situation somewhat improved after the Central Bank reduced the standard rate of mandatory reserves with respect to Ruble denominated deposits of legal entities and forex denominated deposits of legal entities and individuals from 9 per cent to 7 per cent, as well as the refinancing rate from 14 per cent to 13 per cent. However, the influence of this decision on the stock market was minimal in comparison with other segments of the financial market, since the situation there is significantly affected by broker companies and private investors whose financial standing does not primarily depend on the situation in the banking sector. As a result, the stock index fell and at the close of the trading at RTS on June 16 was at 533.26 points.

However, on June 17 there took place the event, which gave a sign to the stock market. The RF President Putin in his speech in Tashkent noted that the Government of Russia was not interested in the bankruptcy of YUKOS. After this statement had been published by news agencies, the demand for shares of YUKOS and other blue chips immediately increased. In one hour the price of YUKOS shares rose by 16.8 per cent and the trade with these shares was in fact stopped (the trading session at RTS is closed at 6 p. m., therefore the suspension of trade at about 5 p. m. was effectively the closure of trading), while MICEX suspended trading for about an hour. Nevertheless, this measure did not significantly influence market operators: after trading was resumed, the rush buying up of all blue chips continued, what resulted in the fact that in one hour the technical MICEX index exceeded its maximal prescribed value and therefore the session had to be closed early.

Over the next week, the market experienced a technical adjustment caused by the fixing of operators profits. The decline in the RTS index below 600 points was determined not only by technical factors (on June 25, at the close of the trading at RTS, the index was at 599.97 points), but also by court rulings concerning the YUKOS, as well as delayed decision concerning OGK.


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.FIGURE 4.

Dynamics of the Russian Blue Chips from May 26 to June 25, 5% 0% -5% -10% Change in price (%) On the whole, in the period from May 26 till June 25, the RTS index decreased by 4.77 per cent, or by 30.02 points in absolute terms. Over the same period, the turnover of the RTS trading amounted to about US $ 533 million (about US $ 428.7 million excluding last days of May), while the average daily turnover at the RTS made about US $ 23.8 million (US $ 340 million and US $ 37 million respectively in May). The highest and the lowest volumes of trade at the RTS made US $ 43.4 million (on June 18) and US $ 11.3 million (on June 22) as compared with US $ 32.5 million and US $ 12.million respectively in May.

points mln US dollars s Sibneft Tatneft GMK LUKoil Russia Russia NorNikel RAO UES Mosenergo Sberbank of Rostelekom Surgutneftegas Over the last month (from May 26 till June 25), all blue chips with the exception of the RAO UES of Russia (a 3.35 per cent growth) and Rostelekom (a 1.87 per cent growth) demonstrated a downfall in prices. Thus, shares in Tatneft (-7.59 per cent) and Mosenergo (-7.51 per cent) became leaders in terms of decrease in prices. These shares were followed by the stocks of the NK YUKOS (6.68 per cent), the GMK Norilsk Nickel (-5.91 per cent), and shares in LUKoil (-5.10 per cent). At the same time, the shares in Surgutneftegaz fell by 4.85 per cent, while prices of Sibneft and Sberbank of Russia also declined (by 0.6 per cent and 0.34 per cent respectively).

As on June 25, the three leaders in terms of the volume of turnover at the RTS6 were as follows: the RAO UES of Russia retained its top position as the share of respective transactions amounted to 37.per cent of the total RTS turnover. The amount of transactions with the shares in the LUKoil was somewhat lower (22.01 per cent). The shares of YUKOS followed: the volume of transactions with this companys shares made 10.75 per cent of the total turnover. Thus, the aggregate percentage of transactions with the shares of only these three companies made about 70.44 per cent of the total turnover of trade at RTS over the period of time under observation.

As on June 25, the top five leaders of the national stock market by capitalization looked as follows7:

LUKoil: US $ 23.35 billion; Surgutneftegaz: US $ 23.28 billion; YUKOS: US $ 19.24 billion; Sibneft:

US $ 14.03 billion; MMC Norilsk Nickel: US $ 12.21 billion.

The market for fixed term contracts. In June, the activity of investors on the RTS market for fixed term contracts (FORTS) significantly increased in comparison with the preceding month. Thus, in the period from June 1 till 25 the aggregate volume of trade in futures and options at the RTS amounted to about RUR 32.1 billion (127.1 thousand transactions; 4.25 million contracts), what was significantly above the respective indicators registered in the preceding month (turnover - RUR 20.6 billion, 102.thousand transactions; 2.77 million contracts).

As usual, futures contracts account for the greatest percentage of transactions: the volume of trade in these contracts made RUR 29.98 billion (3.97 million contracts, 123.87 thousand transactions) over the period under observation. As before, options were in a much lower demand: the respective amount of trading made about RUR 2.14 million (278 thousand contracts, 3.16 thousand transactions). The maximum trading volume was observed on June 8 and made RUR 2.35 billion, while the minimum trading volume (RUR 1.33 billion) was registered on June 7.

Corporate bond market. Over the month, the downfall in prices on the market of corporate bonds continued. From June 1 till June 25, the price index of corporate bonds traded at the MICEX8 decreased by 0.75 points (-0.68 per cent) and the index of ten most liquid corporate sector bonds decreased by 0.24 points ( by 0.21 per cent).

These negative dynamics were primarily caused by the liquidity crisis in the banking sector. Extremely high rates on the market of inter-bank credits forced banks to close out a part of positions with respect to most liquid securities at the background of low demand, what facilitated a decline in quotations. The external situation also remained negative, since the growth in inflationary expectations in the USA facilitated a growth in yields of US treasury bills, which are a benchmark of the world debt market.

In the period from June 1 till 23, the total turnover in the bond sector of MICEX made about RUR 7.5 billion, while the average daily turnover was registered at RUR 468 million, what was significantly above the indicators registered in May of this year.

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.

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 remained at a high level and were not observed to decline below US $ 30 per barrel in spite of the OPEC decision to increase the official oil extraction quotas by 2 million barrels a day from July 1 and by additional 500 thousand barrels a day since August 1. However, it should be noted that this decision will hardly significantly affect the market in the nearest future, since it only legalized the current surplus of oil on the market. Taking into account the fact that at the moment the potential increase in oil extraction makes 2.67 million barrels a day, while the rise in quotas by August may make 2.5 million barrels a day, the 170 thousand barrels surplus can hardly significantly affect the market in the future. Yet another factor facilitating a certain decline in world prices was an improvement of the situation concerning the oil and oil products in the USA. On the contrary, in June high oil prices were supported by the instability observed in the Middle East (attacks of terrorists in Basra and Saudi Arabia), as well as strikes in Norway, which is a largest independent supplier of oil on the world market alongside with Russia and Mexico. FIGURE 6.

210% Dow Jones Industrial Average Nasdaq Composite 190% The RTS Index 170% 150% 130% 110% 90% 70% Throughout the month, on the world stock markets there was observed an improvement of the market situation accompanied by a growth in stock indices. The only exception was the stock index of South Korea, which declined by 0.64 per cent by the end of the month. On the whole, over the month positive trends prevailed across developing markets, what was reflected by the dynamics of the stock index calculated by the agency MSCI (see Table 1).

In June, the US stock indices somewhat grew. In the beginning of the month, the activity of investors on the stock market remained at a relatively low level. A negative factor behind the stock market dynamics was the expectation of a raise in the interest rates: the Alen Greenspens statement indicated that the FRS is ready to raise interest rates depending on the rates of inflation. On the contrary, a certain decline in oil prices observed in the beginning of the month resulted in an increase in the market value of US stocks. However, in the second half of the month, Alen Greenspen somewhat softened his position, since, according to his statement, inflation was not a serious cause for concern. Publication of favorable macroeconomic statistical data, as well as a certain decline in yields of US government bonds also facilitated a growth in quotations. However, significant growth was checked by the end of decrease in oil prices on world markets, as well as new terrorist attacks in Iraq.

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