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Corporate bonds market In November, further deterioration was observed in the Russian domestic market for corporate bonds. The instability of financial markets creates rather high risks to the participants of credit market, both, creditors and debtors, what is reflected in the growing level of bond yields. In the recent months the nominal amount of registered issues of bonds has decreased several times, which means a reduction of the internal market of corporate bonds in the near future. This month, the total volume of the placed bond issues remained virtually unchanged as compared with preceding period, but the share thereof is issued by the large companies.

In November, the volume of the Russian domestic corporate bond market (at face value of the securities) was the highest since the beginning of 2008 and amounted to RUR 1 656.3 billion, what is by 1.7 per cent exceeds the indicator of October 2008. Within October 27 - November 21, 23.7 thousand transactions in corporate bonds were made at the MICEX Stock Exchange for the total amount of RUR 38.1 billion (as compared with 25.1 thousand transactions for RUR 38.6 bln within September 29 October 24).

In November 2008, negative trend was sustained in regard to the Russian market index of corporate bonds RUX-Cbonds, which has declined from 24 October to 24 November by nearly 4 points to a minimum level since October 2007. Herewith, the effective yield increased from 18.0 per cent to 18.88 per cent and the duration of the portfolio of corporate bonds reduced by 8 days and made days (Fig. 6).

20 Effective yield Index RUX-Cbonds 16 12 8 4 0 Fig. 6. The dynamics of the Russian corporate bonds market index and the weighted average yieldIn November, the downgrading trend in the issues of registered corporate bonds was sustained. In the period from October 25 to November 24, 15 issues of corporate bonds were made for the amount of RUR 21.5 billion (from September 24 to October 24, 12 issues for the amount of RUR 37.7 billion, and in the period from August 25 to September 23 - 42 issues for the total amount of RUR 168.billion), including the emitters, who issued the bonds for the first time. Herewith, OAO Razguliay Group has issued 9 series of corporate bonds for RUR 12 billion.

In November the amount of corporate bond issues has decreased, though the total amount reached RUR 31.1 billion, which exceeds the October indicator by 8 per cent (See Fig. 7). OAO Russian Railways and OAO Mobile TeleSystems have placed the bonds for the total amount of RUR billion. Therefore, investors are basically focused on large emitters.

Cbonds data Effective yield, % Index RUX-Cbonds Total emission Amount of placed issues 0 Fig. 7. Dynamics of corporate bonds primary placements In the period from October 25 to November 24, due to the fact, that the Russian Federal Service for Financial Markets has not issued any bonds, 12 issues of corporate bonds, offered for public placement were recognized invalid (10 issues in preceding period)15.

In the period from October 25 to November 24, seven companies-emitters have remitted the bonds for the total amount of RUR 5.6 billion. Since the beginning of November three emitters have rejected the bonds remittance and five emitters failed to pay the coupon yield. In December, 23 issues of corporate bonds are expected to be repaid for the total amount of RUR 27.4 billion16..

Real Economy: Trends and Factors O. I. Izryadnova In January-October 3008 macroeconomic situation was formed in the environment of sudden slowdown in growth rates of the investments in fixed assets and workload in construction and industry, consumer demand sustaining at high level and retail trade turnover growing. The structure of industrial growth was determined by the slowdown of the dynami9cs in both extractive and processing industries. On the basis of the trends characteristic for January-October the expected GDP growth as a result of 2008 can be in the range from 106.5% to 106.8%.

In October 2008 as compared with the corresponding period of the previous year the total number of the unemployed increased by 8.7%, which is a negative consequence of the financial crisis. It is expected that by the end of the year the number of citizens registered at the state employment agencies will considerably increase..

In January-October 2008 the deceleration of growth rates was observed in nearly all kinds of economic activities. Macroeconomic situation was formed in the environment of sharp decrease in growth rates of investments in fixed assets, workload in construction and industry, consumer demand remaining at a high level and retail trade turnover growing. In the 2nd and 3rd quarters there were anticipating retail trade turnover growth rates observed as compared with the investments in fixed assets, which defined the change in GDP use proportions and in the structure of the internal demand.

Cbonds data Russian Federal Service for Financial Markets information.

Cbonds data rubles Amount of placed bond issues Total volume of placed bond issues, billion Jul.Jan.Apr.Jun.Nov.Oct.Nov.Feb.Mar.Dec.Aug.May.Sept.Source: Federal State Statistics Service Fig. 1 GDP, Investments in Fixed Assets, Retail Trade Turnover, Industrial Output Growth Rates in 2006-2007 as Percentage to Corresponding Period of Previous Year Fig. 2 Changes in Production Growth Rates as Broken by Kinds of Economic Activity in Industry in 2007-2008, as percentage to the corresponding period of the previous year Internal demand continued to grow at faster rates than the economy as a whole at the expense of goods and services import expansion. The share of the internal production in the structure of internal demand backing sources is reducing in 2008. According to a preliminary estimation as a result of three quarters the share of import in the structure of retail trade turnover resources made 47%, exceeding the figure of the previous year by 1 per cent, the share of import being observed to increase in resources of both the foodstuffs and non-food goods. The situation is aggravated by the foodstuffs production growth rates deceleration down to 103.0% over January-October in contrast to 106.2% over the corresponding period of the previous year and the reduction in textile and sewing industry goods production by 0.4%.

Over January-October 2008 increase in minerals production was equal to 0.5% as compared with 2.1% over the corresponding period of the previous year, in processing industries production to 7.1% as compared with 10%, and in electricity, gas and water production and distribution to 4.1% as compared with 1.8% drop in 2007. Electricity production over January-October 2008 increased by 4.1% as compared with 0.8% in the corresponding period of the previous year, the growth rates of the industrial production and economy as a whole decelerating. It is obvious that the ratio of these indices has to be studied thoroughly and the effectiveness of electricity is to be analyzed.

As to minerals extraction, in January-October 2008 reduction in oil production was equal to 0.5% as compared with the corresponding period of the previous year against the increase in gas production by 1.4% as compared with the drop of 1.3% a year before and the acceleration in coal extraction up to 6.7% against 2.6% a year ago. It should be noted that in October 2008 the oil production growth rates were 103.4% as compared with the previous month, in September 97% and in August - 101.2%.

Monthly dynamics of gas production in September and October is also in the field of positive values of 108.0% and 106.8%, correspondingly.

In the environment of the existing dynamics of oil production in January-October 2008 primary oil processing has increased by 4.2%, exceeding the figures of the previous year by 0.4 per cent. In January-October 2008 the proportion of oil export in the total amount of Russian export made 36.0%, in fuel and energy commodities export 51.8% as compared with, correspondingly, 34.5% and 54.0% in January-September 2007.

Analysis of production in the processing industries over January-October 2008 enables stating that the dynamics of pulp-and-paper, metallurgy, chemistry industries as well as rubber and plastic goods industry production has slackened, the production in October decreasing in comparison with the production in September.

Table Production Indices for Major Kinds of Processing Industries, As Percentage January-October on October on SepJanuary-October tember 2007 2008 Processing industries 110.0 107.0 100.Foodstuffs production, including beverages and tobacco 106.2 103.0 100.Textile and sewing industry 100.1 99.6 95.Leather, leather goods and footwear production 103.4 105.3 101.Wood processing and wooden goods production 105.1 106.6 95.Pulp and paper production, publishing and polygraphic 108.8 104.2 99.activity Coke and oil products production 102.6 103.6 101.Chemistry industry 106.9 100.8 97.Rubber and plastic goods production 122.0 116.5 97.Other non-metal mineral products production 112.9 104.0 95.Metallurgy production and production of finished metal 102.2 101.7 101.goods Machinery and equipment production 121.4 108.2 107.Electric, electronic and optic equipment production 113.1 94.1 94.Transport vehicles and equipment production 116.1 115.1 97.Other industries 106.3 110.6 101.Over January-October machinery, equipment and transport vehicles production reduced by 13.2 per cent as compared with the corresponding period of the previous year. Positive dynamics is mainly maintained at the expense of orders for mechanical equipment, including energetic (113.1% on January-October 2007), household equipment production, which is accounted for by the increase in populations demand for large-size household equipment (105.4%). At the same time as an effect of curtailment of the investment programs, production of machinery and equipment for general purposes has reduced by 11.9% as compared with January-October 2007, and for specific purposes by 1.1%, of machinery tools by 3.9%, and the deepening of the production recession has been observed in October as compared with September of the current year.

Despite the fact that on the whole over the period of January-October 2008 the dynamics of the transport vehicles production remains at a considerably high level, the worrying moment is a considerable reduction in production in October as compared with September 2008, railway machine-building production recession in trucks production by 17.7% and stabilization of passenger cars production (100.5%)/ Since during the last years these kinds of activities had the biggest influence on the dynamics of processing industry, it is obvious that their growth rates deceleration will have a negative effect on the adjacent production and the industry as a whole.

The slackening of the dynamics of the extractive and processing industries observed in SeptemberOctober will have a negative effect on the resulting industrial growth rates of 2008. the existing trends sustaining, the expected growth rates of the industrial production is in the range from 3.0-2.8% against 6.3% in 2007.

Over January-October of the current year the investments in fixed assets went up by 12.3% as compared with 21.1% in the corresponding period of the previous year. At the same time the deceleration of investment activity growth rates has aggravated from 19.1% in the 1st quarter 2008 to 13% in the 2nd quarter and 9.9% in the 3rd quarter as compared with the corresponding period of the previous year.

The situation at the crediting market aggravating in October as compared with September 2008 the reduction in investments by 1.9% was observed that led to the decrease in the workload in construction by 5.2% and construction materials output by approximately 4.4%. The dynamics of workload in construction this year was determined by the level of business activity in the segment of the industrial objects construction and infrastructure against the background of housing construction growth rates deceleration as compared with 2007. On the whole over January-October 2008 there were 40.0 mln sq.m. of the total floor space was put into commission, which exceeds the level of the previous year by 5.2%. The worrying moment is the absolute decrease in the floor space put into commission by 19.1% in October as compared with figures of September of the current year. The shortage of the liquid funds and sharp reduction of the crediting market is accompanied with the process for building conservation and curtailment of investment programs both this year and for 2009.

It is still the consumer market that has the determining influence on the sustention of the general economic dynamics. In January-October 2008 against the background of investment processes acceleration at the consumer market and deceleration of the growth rates of the disposable monetary incomes of the population increase in the retail trade turnover was equal to 14.7% as compared with 15.7% in the corresponding period of the previous year. This is accounted for by both the deceleration of real disposable incomes growth rates down to 107.6% and of real wages down to 112.6% in January-October 2008 as compared with 110.5% and 116.09%, correspondingly, as well as the reduction in consumer crediting.

Comparatively moderate inflation for non-food goods growth rates (107.3% in January-October) as compared with foodstuffs (113.9%) defined the specific features of retail trade turnover. Over January-October 2008 the sales of foodstuffs went up by 19.6%, exceeding the corresponding figure for the similar period of 2007 by 1.0 per cent, whereas the turnover of foodstuffs increased by 9.0% as compared with 12.6% in January-October 2007. Such a ratio of turnover growth rates in the segments of consumer market is due to expectation of high inflation among the population and is supported by the trend for populations savings outflow from the banking sector. Under existing figures for incomes, prices and ruble exchange rates the expected increase in the goods turnover as a result of the year is approximately 14%.

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