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billion rubles billion dollars 1-7.06.3-9.08.2-8.03.6-12.10.8-14.12.9-15.02.5-11.05.22-28.06.13-19.07.24-31.08.15-21.09.17-23.11.19-25.01.23-29.03.14-20.04.16-22.06.27.10-2.11.26.05-1.06.29.12.04-4.01.and without public registration of the report on bond issuance results. In addition, the Board of Directors of the Bank of Russia shall make decisions on bond issuance.

At present, the yield of RF Central Banks bonds is considerably below the market average. These bonds are only attractive for the banks that perform REPO transactions, since these bonds can be accepted as security.

P. Trunin Financial MarketsIn June, the Russian Financial Market was characterized by dominating instability. The domestic debt market was under consolidation, while the Eurobonds market and the stock market demonstrated a notable growth. The situation in the Russian Eurobond market was improved mainly by a favorable movement of the base assets ( US Government Bonds ) and upgrading of the RF sovereign credit rating that was expected to follow the credit rating upgrading for several Russian companies. Positive movement in the stock market was mainly governed by favorable corporate news, in particular by the fact that the State finally became the owner of a block of blocking shares of Gazprom after which government officials made statements that the market of shares of this gas producing monopolist was likely to be liberalized as early as this year. Favorable situation in the global markets of oil and metals, as well as an extremely good financial performance reports of primary industry companies in promoted the growth of their market quotations and basic stock market indices.

Government Bond Market In June, the Russian foreign exchange debt market was under a favorable condition when Russian securities reached their historically maximum quotations, while the spread between quotations of these securities and US Government Bonds reached its historically minimum figures. The positive movement early in the month was caused by a favorable situation in the American Government Bonds market. This was followed, however, by a slight decline in quotations, which was partially caused by some technical factors and partially by a certain deterioration in the US Government Debt Market where bonds declined due to expectations of further increase in rates after . Greenspans report at the US Congress. The prices stopped to decline at the end of the month and the yield began to grow again thus reflecting improvement of the situation in the US Government Debt Market.

According to the data as of June 24, 2005, the yield to maturity of the Russian RUS 30 Eurobonds accounted for 5.41% per annum, and RUS-18 was 5.68% per annum. The yield of the Russian Eurobonds was as follows: 7th tranche of Minfin Bonds 5.37%, 6th tranche of Minfin Bonds 4.18%, 5th tranche of Minfin Bonds 5.02%, RUS-07 4.42%.

No substantial fluctuations were noted during transactions in the ruble government debt market in the first half of the month. Changes in quotations were effected by various negative and positive factors. On the one hand, they were caused by such negative factor as decline in RUR/USD exchange rate in the foreign exchange market and expectations of subsequent inflation growth, on the other hand, by a favorable situation in the sector of Russian Eurobonds which reached another historical maximum values, as well as adequate liquidity in the banking sector.

In the beginning of the second half of the month, market participants focused mainly on original issues, OFZ 46018 ( federal bonded loans ) issue was placed almost in full, against the backgrounds of declining secondary market turnovers and certain stabilization of quotations under the reversing downward trend in the RUR exchange rate. At the same time, no drastic changes in the situation were noted at end the month: the price fluctuations were insignificant and reflected mostly the signals coming from the foreign exchange market and the Eurobond market.

Our review was based on analytical materials and reviews made by Zenit Bank, ATON Asset Management Company, MICES, the Central Bank of Russia, as well as official web-sites of numerous Russian corporate issuers.

FIGURE 1.

Minfin bonds' yields to maturity in April - June 6.5% Tranche 5 Tranche 6 Tranche 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% FIGURE 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in April - June 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% USD-2030 USD-2007 USD-In the period between June 1 and 24, the total secondary GKO-OFZ market turnover accounted for nearly 89.48 bln rubles with the average weighted turnover being 5.26 bln rubles ( 44.67 bln rubles with the average weighted turnover being 2.48 bln rubles in May ). Hence the figures reflecting activ 01.04.05.04.07.04.11.04.13.04.15.04.19.04.21.04.25.04.27.04.29.04.04.05.06.05.12.05.16.05.18.05.20.05.24.05.26.05.31.05.02.06.06.06.08.06.10.06.15.06.17.06.21.06.23.06.01.04.05.04.07.04.11.04.13.04.15.04.19.04.21.04.25.04.27.04.29.04.04.05.06.05.12.05.16.05.18.05.20.05.24.05.26.05.31.05.02.06.06.06.08.06.10.06.15.06.17.06.21.06.23.06.ity in the ruble government bond market almost doubled in June against those May. An action on placement of OFZ-AD 46018 issue was held during the month with the issue value being 8 bln rubles.

The placement value was 7.94 bln US dollars offering the average weighted yield of 8.82% per annum.

As of 27 June, the volume of GKO-OFZ ( government short-term bonded loans and federal bonded loans ) market was 629.0 bln rubles in terms of nominal value and 611.8 bln rubles by market value. The market GKO-OFZ portfolio duration was 1702.56 days.

Corporate Security Market Stock market condition. In June, the market of Russian issuers showed a sustained growth which was caused mainly by favorable corporate news and extremely high oil prices.

In the beginning of the month the stock market was dominated by an upward trend in the listed securities, which resulted from oil price growth and improved liquidity in the banking sector. At the same time, a sharp increase in the USD/RUR exchange rate restricted the market growth. Termination of the court case against M. Khodorkovsky and P. Lebedev seems to be another relevant factor that facilitated a stable market situation and could have an effect on buyers activity.

During the second week the market was stabilized after a period of growth based on expectations of the news on the reform in the field of electric power industry, liberalization of Gazprom stock market and privatization of Svyazinvest. However, resignation of Mosenergo Director General . Yevstafiev, which followed a bitter criticism by the RF President of the companys management after the power energy crisis that occurred in Moscow and at the regions of the nearest vicinity, became a negative factor for the market. In addition, the market participants experienced no optimism due to a statement made by Deputy Attorney General V. Kolesnikov that besides the Khodorkovsky-Lebedev case there could be more cases against some other Russian tycoons.

At the same time, this had no significant impact on the market, and quotations of most of the blue chips showed a notable growth in the second half of the month at the stock market, which resulted in a growth of basic stock market indices. Securities of Lukoil and Norilsky Nikel became leaders of the growth. The former grew at the backgrounds of a sharp increase in oil prices, while the latter were effected by a positive financial performance report of the company, according to MSFO in 2004. The factor that the Board of Directors of Gazprom discussed the repurchase value of its shares from the subsidiaries was considered a positive one by the market as well. Positive price movement continued during the forth week of June and the RTS index broke the psychologically relevant level of points. The growth was caused by a favorable corporate news on Gazprom that the State would finally become the owner of a block of blocking shares of the gaz monopolist by the end of June, information on approval of Svyazinvest privatization documents by the FSO, as well as Moody`s upgrading of credit ratings of various Russian companies which beat the Russias sovereign credit rating.

In general, the RTS index grew by 4.77% in the period between June 1 and 28, which amounted to 31.8 points in real terms. Trading turnover of shares included into the the RTS index amounted to nearly $390.16 ml US dollars with an average weighted turnover being $21.67 ml US dollars ( against $171.8 ml US dollars with an average weighted turnover being $9.5 ml US dollars in June ) over the same period. Hence investors were considerably more active in June as compared to May.

Maximum and minimum trading turnover figures in June were $32.12 ml US dollars and $9.91 respectively against $20.6 ml US dollars and $1.6 ml US dollars in May.

According to the data on monthly figures ( from May 27 till June 28 ), quotations of most of the blue chips grew up. In June, YUKOS shares were leading in the growth, speculative trading with these shares boosted quotations growth straight by 12.99% during the month. Quotations of Tatneft ( +9.76% ), Sibneft ( +7.33% ) and Surgutneftegaz ( +6.92% ) grew at a slower rate. Second to these were Lukoil ( +4.15% ), Sberbank RF ( 3.63% ), RAO EES of Russia ( +2.41% ) and Norilsky Nikel ( +1.7% ). At the same time, Mosenergo shares experienced a substantial drop by 13.02% over the previous month. Rostelekom shares also declined by in June, by 1.46%.

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.FIGURE 4.

Dynamics of the Russian Blue Chips from May 27 to June 28, 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Change in price (%) points mln US dollars s 05.05.24.05.09.06.28.06.14.07.30.07.17.08.02.09.20.09.06.10.22.10.10.11.26.11.15.12.31.12.26.01.11.02.02.03.21.03.06.04.22.04.13.05.30.05.16.06.Ukos Tatneft Sibneft GMK LUKoil Russia Russia NorNikel RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas In June, shares of OJSC Lukoil ( 33.48% ), RAO EES of Russia ( 20.0% ), GMK Norilsky Nikel ( 9.91% ) were leading in terms of turnover in the RTS7. In addition, shares of Surgutneftegaz, Rostelekom and Sberbank RF also ranked among the leaders in terms of turnover in the RTS according to the results of week trading within the month.

According to the data of June 28, the top-five list of leaders in terms of capitalization is as follows8: Lukoil $30.74 bln US dollars, Surgutneftegaz $26.5 bln US dollars, Sibneft $15.19 bln US dollars, Norilsky Nikel $12.74 bln US dollars, Sberbank RF - $12.47 bln US dollars.

Futures market. Investors were more active in the RTS futures market ( FORTS ) in June as compared to May. In the period between June 1 and 28 June, the total turnover of the RTS futures and option market accounted for nearly 29.62 bln rubles ( 93.4 thousand transactions, 3.22 million contracts ) against 19.68 bln rubles ( 87.9 thousand transactions, 2.33 million contracts ) in May.

Futures were in the largest demand among market participants: the futures market turnover over the period under review accounted for 25.15 bln rubles ( 86.9 thousand transactions 2.71 million contracts ). Options were in a far less demand in the market: the option turnover amounted to nearly 4.bln rubles ( 6.56 thousand transactions and 505.49 thousand contracts ). The maximum trading volume in the futures market accounted for 2.88 bln rubles ( June 14 ), while the minimum one was 875.77 ml rubles on June 20.

Corporate bond market. The sector of corporate and regional bonds remained stable throughout the month where participants were focused mostly on blue chips as evidenced by almost zero movement of the consolidated index of corporate bonds traded in the MICEX, and a positive incremental growth of the index of most attractive bonds.

The corporate and regional debt market remained stable within the first week of the month. Even the weakening RUR against the USD had no effect on the market quotations. This situation was followed by a slight upward trend in the corporate and regional bond market, since it looked more attractive under stagnation in the stock market and low interest rates in the government bond market.

At the beginning of the second half of the month, the market recorded slight fluctuations at the backgrounds of changing trend, which can be considered as a relative balance between the demand and the supply. In spite of this, the statistical data of primary issues was indicative of the fact that this segment of the Russian financial market is still popular among investors due to a relatively attractive risk : yield ratio. As previously, the movement in the market was mainly caused by changes in the USD exchange rate and liquidity level in the banking sector. The market was also supported by the information that Moody`s had upgraded the credit rating for Gazprom and some other Russian companies, which appeared to be by 1-2 points higher than the Russias sovereign credit rating due to introduction of a new rating methodology.

In the period between June 1 and 28, the price index of corporate bonds traded in the MICEX grew by 0.15 points ( 0.14% ), whereas the index of top-ten most liquid corporate bonds was 0.points ( 0.70% ). In the period between June 1 and 14, the total turnover of corporate bonds in the MICEX was nearly 22.01 bln rubles with an average weighted turnover being 1.29 bln rubles ( nearly 23.77 bln rubles with an average weighted turnover being 1.32 bln rubles in May ). Hence in June, the trading turnover of corporate bonds of Russian companies remained equal to that in May.

In a classic stock market.

According to the RTS data.

The calculations were based on the corporate bond indices traded in the MICEX and calculated by Zenit Bank.

Figure 5.

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