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During the third week in February, US bonds continued their growth, which was accounted for by a noticeable worsening of the situation around Irans nuclear issue, followed by growth in the demand for US government obligations, which are regarded as protective assets whenever global risks become higher. At the same time, growth was suppressed by increased inflation expectations after the publication of data on the level of CPI, which was higher than expected by 0.1 %. This is clear evidence that it is, as yet, too early to speak of any stable decrease in inflation pressure in the USA, and there still remains the risk that the rate of discount may be further increased. Against this background, Russian bonds continued their moderate growth, which contributes to decreasing yields to maturity.

As of February 22, the yields to maturity of Russian eurobonds RUS-30 amounted to 5.6 % per annum, those of RUS-18 to 5.74 % per annum. As of the same date, the yields to maturity of Russian eurobonds When preparing this overview, the author used, as sources, the analytical materials and reviews issued by the Zenit Bank, the IC ATON, the MICEX and the RF CB, as well as the official web sites of Russian companies - issuers of securities.

were as follows: Tranche 8 of the Minfin bonds 5.54 %, Tranche 7 of the Minfin bonds 5.52 %, Tranche 5 of the Minfin bonds 5.66 %, RUS-07 5.28 %.

FIGURE 1.

Minfin bonds' yields to maturity in December 2006-February 7.0% Tranche 5 Tranche 8 Tranche 6.5% 6.0% 5.5% 5.0% FIGURE 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in December 2006 - February 6.3% RUS-2030 RUS-2007 RUS-6.0% 5.8% 5.5% 5.3% 5.0% Early in February, the government rouble-denominated debt market demonstrated a moderate growth in quotations. The market was being supported by the external situation, as well as by favorable liquidity levels. At the same time, at the beginning of February, the RF Central Bank changed the structure of the bicurrency basket, by increasing the euros share, which automatically resulted in the roubles strengthening in 01.12.06.12.11.12.14.12.19.12.22.12.11.01.17.01.22.01.25.01.30.01.02.02.07.02.12.02.15.02.21.02.01.12.06.12.11.12.14.12.19.12.22.12.11.01.17.01.22.01.25.01.30.01.02.02.07.02.12.02.15.02.21.02.respect of the USD. This was followed by a markedly worsened situation as regards liquidity, resulting in a short-term fall in the demand for rouble-denominated bonds. However, the interest of investors toward rouble-denominated bonds did not decrease, as confirmed by the rather successful placement of OFZ. Later on, at mid-month, the vectors of quotation changes became multidirectional, which could be explained by yields having been fixed by some of the investors, in face of the worsening situation with money liquidity. The favorable situation on the external market was guarding the prices from more noticeable declines. Toward the months end, further growth of interest rates on the MBK market resulted in diminished investor activity on the secondary government debt market. In this connection, in respect of certain issues, the excessive demand at the auctions for additional placements was promoting the growth in demand for these securities on the secondary market. At the same time, the quotations of government securities, as seen by the results of the months third week, became, on the whole, lower.

In the period between 1 and 22 February, the aggregate turnover on the GKO-OFZ secondary market amounted to approximately 57.96 billion roubles, the daily average turnover being at the level of 3.62 billion roubles (having amounted to about 87.54 billion roubles, with the daily average turnover at the level of 6.billion roubles, in January). Thus, the activity of investors on the government bond market in February became markedly lower.

During February, two auctions for additional placements of OFZ were held. Thus, on 7 February, there was the auction for the placement of OFZ 25061 in the amount of 12 billion roubles. The actual amount placed was 11.99 billion roubles, with the weighted average yield of 6.15 % per annum. On 21 February, the auction for the placement of OFZ-PD 46021 was held, the volume of issue being 15 billion roubles, the actual amount placed 14.92 billion roubles, the weighted average yield 6.58 % per annum.

As of 28 February, the GKO-OFZ market volume amounted to 931.03 billion roubles in face value and 931.18 billion roubles in market value. The GKO-OFZ market portfolios duration was 1989.39 days.

The corporate securities market The situation on the share market.

As demonstrated by the months results, there was growth on the Russian stock market, with absolute historic highs being achieved by the RTS and MICEX indices.

FIGURE 3.

170 1 950.160 1 875.The total volume of trading ($) 150 1 800.The RTS Index 140 1 725.130 1 650.120 1 575.110 1 500.100 1 425.90 1 350.80 1 275.70 1 200.60 1 125.50 1 050.40 975.30 900.20 825.10 750.675.Throughout February, the main factor responsible for the dynamics of Russian shares remained the international oil prices. Thus, early in the month, the price of oil was fluctuating between $ 58 and $ 60 per barrel, which caused instability in the prices of Russian shares. A relatively favorable situation was characteris points mln US dollars s 01.12.19.12.12.01.30.01.15.02.06.03.23.03.10.04.26.04.16.05.01.06.20.06.06.07.24.07.09.08.25.08.12.09.28.09.16.10.01.11.20.11.06.12.22.12.17.01.02.02.20.02.tic of the electric power engineering sector, where increased investors demand was contributing to a stable growth of quotations. In particular, the shares of the RAO UES of Russia were displaying a stable growth of their prices, which could be explained by its credit rating having increased from B+ to by the S&Ps rating agency, as well as by the meeting of the board of directors of the RAO UES of Russia, where the plans for reforming the holding and sales of assets were discussed. Certain support to the market could also be given by the words spoken by the RF President Putin concerning Russias stable economic growth, as well as by the relatively favorable situation on the international stock markets.

Later on, until the beginning of the months last week, the Russian share market was demonstrating a stable growth, resulting from a number of factors, with a short-term adjustment at mid-month. Firstly, oil prices became stabilized around $ 60 per barrel, which is quite comfortable for the Russian oil and gas sector and, consequently, resulted in an increased investors demand for the shares of that sectors companies. Secondly, the markets of developed and developing countries were growing, which supported Russian shares, too.

Thirdly, the market dynamics were influenced by some positive corporate news. Thus, the price of the Sberbank of Russias shares within the framework of the oncoming additional issue was determined, which, although being somewhat lower than the market quotations, helped, nevertheless, to clear the uncertainty among investors in respect of this issue. Besides, the information appeared that Rosneft would be able to participate in the auctions for the sale of Gazprom nefts and Rosnefts blocks of shares owned by Yukos, which proved to be very supportive both for that companys shares and the marketr as a whole.

On the whole, during the period between 1 and 26 February 2006, the RTS index grew by 4.04 % to a new historic high of 1970.77 points, which in absolute terms amounts to approximately 76.52 points. In the same period, the turnover volume of the shares incorporated in the RTS index was about $ 732.01 million, the average daily turnover being at the level of $ 43.06 million (against approximately $ 779.9 billion, with the average daily turnover at the level of $ 55.7 million, in January). Thus, the investor activity on the stock market in February was somewhat lower than in the previous month. The indices of maximum and minimum turnovers in the trade system in February were $ 69.4 million (on 26 February) and $ 22.3 million (on February), respectively.

Judging by the months results (from 26 January through 22 February), the rates of nearly all blue chips were rising, with the exception of Gazprom neft (- 8.44 %) and Gazprom (- 0.74 %). Thus, the leaders in terms of price growth were the shares of Mosenergo (37.3 %), followed by those of the GMK Norilskii Nikel (15.48 %), the RAO UES of Russia (11.41 %) and Rostelekom (8.29 %). Somewhat lower growth rates of prices were demonstrated by the shares of the Sberbank of Russia (5.43%), Tatneft (3.%), Surgutneftegas (2.02 %), Rosneft (1.01%) and LUKoil (1 %).

FIGURE 4.

Dynamics of the Russian Blue Chips from January 26 to February 22, 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Change in price (%) Tatneft GMK LUKoil Rosneft Russia Gazprom NorNikel Russia RAO UES Mosenergo Rostelekom Sberbank of Gazprom neft Surgutneftegas In February, the list of leaders in the RTS turnover6 was as follows: the RAO UES of Russia (31.3 %), Gazprom (12.8 %), the Sberbank of Russia (9.8 %), the GMK Norilskii Nikel (8.8 %), and LUKoil (8.%). The aggregate share of the transactions involving the shares of those companies amounted to about 71.% of the RTSs total turnover of shares.

As of 22 February, the five leaders in terms of capitalization on the domestic share market were as follows7: Gazprom - $ 254.49 billion, Rosneft - $ 95.29 billion, the RF Sberbank $ 68.9 billion, LUKoil $ 68.6 billion, the RAO UES of Russia - $ 51.3 billion, Surgutneftegas $ 44.8 billion,.

The futures market In February, the investors activity on the RTS futures market (FORTS) became somewhat higher, as compared to the previous month. Thus, during the period from 1 through 22 February, the aggregate turnover of the RTS futures and options market amounted to approximately 247.25 billion roubles (509.79 thousand transactions, 6.25 million contracts), against approximately 212.2 billion roubles (433.6 thousand transactions, 5.7 million contracts) in January.

The highest demand displayed by the market participants was, as before, for futures: the volume of trade in futures during the period under consideration amounted to 223.2 billion roubles (497.4 thousand transactions and 5.52 million contracts). Options were in much lesser demand the volume of trade in them amounted to approximately 24.05 billion roubles (12.4 thousand transactions and 0.728 milliom contracts).

The peak trade volume on the futures market was 24.,09 billion roubles (on 13 February), while the lowest trade volume amounted to 10.4 billion roubles (on 20 February).

The corporate bonds market.

The situation on the market of corporate and regional bonds, as demonstrated by Februarys results, somewhat improved. Early in the month, the quotations somewhat grew, being supported by the sufficiently favorable situation with liquidity in the banking sector and the relative stability of the Russian eurobonds growth, which follows tha growth of basic assets the government bonds of the US Treasury. At the same time, the changed structure of the bi-currency basket, followed by the roubles strengthening, produced no marked impact on quotations, which can, probably, be explained by the unexpectedness of this move on the part of the RF Central Bank for the majority of investors. During that week, several auctions were completed on the secondary market, where, due to the huge amount of placements (approximately 11.3 billion roubles), securities were sold with a certain premium on market yields.

FIGURE Dynamics of corporate bond indices 122.ZETBI-Corp ZETBI-Corp120.118.116.114.112.110.108. On the classical share market.

According to the RTS data.

01.12.20.12.16.01.01.02.17.02.09.03.27.03.12.04.28.04.18.05.05.06.22.06.10.07.26.07.11.08.29.08.14.09.02.10.18.10.03.11.22.11.08.12.26.12.19.01.07.02.Towards mid-month, the activity of investors on the market remained low, demand being mainly displayed by the securities of the first echelon. One of the reasons for the decline in activity was represented by the necessity soon to make the payments of taxes, with the resulting worsening of the liquidity situation in the banking sector. The influence of this factor also remained as strong as before during the third week of February. As a result, the quotations of corporate bonds demonstrated a moderate decrease, being sustained only by the positive signals coming from the external market.

As a result, between 11 and 22 February, the price index of the corporate bonds tradable on the MICEXwent up by 0.13 points ( 0.12 %), whereas the index of the ten most liquid bonds of the corporate sector increased by 0.10 points (0.08 %). During the same period, the aggregate turnover in the corporate bonds section of the MICEX amounted to approximately 32.9 billion roubles, with the average daily turnover being at the level of 2.059 billion roubles (as compared to approximately 23.5 billion roubles, with the average daily turnover of 1.68 billion roubles, in January).

The external factors influencing the changes on the Russian stock market On the whole, the situation on the international oil market throughout February remained moderately positive. Thus, early in the months first week, oil prices somewhat decreased, despite the shrinking reserves of oil and oil products in the USA. However, soon the quotations returned to the same level and reached $ per barrel, which can be explained by the relations between the USA and Iran having worsened once again, and also, perhaps, by the effect of the OPECs lowered official supplies from 1 February 2007. During the remaining part of February, the price of oil continued to fluctuate around $ 60 per barrel, sometimes rising higher. The market was responding to the published information concerning the reserves of oil and oil products in the USA, as well as to the situation developing around Irans nuclear program.

FIGURE 6.

220% Dow Jones Industrial Average 200% NASDAQ Composite The RTS Index 180% 160% 140% 120% 100% 80% The situation on the international stock markets in January was, as before, rather favorable (see Table 1).

The indices of the majority of stock markets in developed and developing countries increased over that month. The exceptions were Bovespa in Brazil (-0.14 %) and Seoul Composite in South Korea (- 4.4 %).

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