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The Market for Government Securities In March, the prices of the Russian forex denominated bonds declined. In the beginning of the month, the growth in yields was determined by the dynamics observed on the US debt market and the markets of developing countries, which declined under the impact of the publication of unfavorable US statistics, which provided evidence of persisting inflation pressure. Besides, the fact that the European Central Bank had raised its base interest rate to 2.5 per cent per annum also was a factor having an additional impact on prices. Over the larger part of March, the dynamics of quotations were of moderate negative nature thus reflecting the situation on the US debt market, which was considered to be the benchmark by the investors operating on the markets of developing countries. As a result, the yields of securities gradually increased. However, closer to the end of the month the next raise of the interest rates in the USA resulted in the fact that yields of short term and long term US government bonds had become practically equal. At this background, the spread of Russian and US securities had become much narrower, and in the result of these developments by the end of the month the trade with Russian Eurobonds was mixed and did not demonstrate any clear trends.

As on March 24, the yield to maturity of Russian Eurobonds RUS 30 was 5.76 per cent p.a.; RUS 18: 5.91 per cent p.a. Besides, on the same date the yield to maturity of the Russian Eurobonds was:

In the course of preparation of the survey, there were used analytical materials and surveys published by the Zenith Bank, investment company ATON, MICEX, and the materials presented at web sites of Russian issuing companies.

Minfin bonds, 7th tranche: 5.57 per cent; Minfin bonds, 6th tranche: 4.60 per cent; Minfin bonds, 5th tranche: 5.49 per cent; RUS 07: 5.44 per cent.

Figure 1.

Minfin bonds' yields to maturity in January - March 6.0% Tranche 5 Tranche 6 Tranche 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 January - March 6.5% USD-2030 USD-2007 USD-6.0% 5.5% 5.0% 4.5% 10.01.12.01.16.01.18.01.20.01.24.01.26.01.30.01.01.02.03.02.07.02.09.02.13.02.15.02.17.02.21.02.27.02.01.03.03.03.09.03.13.03.15.03.17.03.21.03.23.03.10.01.13.01.18.01.23.01.26.01.31.01.03.02.08.02.13.02.16.02.21.02.28.02.03.03.09.03.14.03.17.03.22.03.In the beginning of the month, on the market of the Ruble denominated government debt there was observed an increase in prices resulting in the Ruble appreciation against the US dollar, which meant a growth in attractiveness of Ruble denominated assets. Later in March, periods of negative adjustment alternated with certain growth, what on the whole reflected the dynamics of the external debt, fluctuations of liquidity in the banking sector, as well as the dynamics of the domestic forex market, which was traditionally viewed as one of the main factors affecting the situation on the Ruble denominated Russian debt. At the same time, while in the first two weeks of the month the intensity of trade was not very high, in the beginning of the second half of March its turnover significantly grew.

Over the period from March 1 to 24, the aggregate turnover of the secondary GKO OFZ market made about RUR 98.45 billion, while the average daily turnover was at RUR 5.79 billion (about RUR 94.3 billion and RUR 5.55 respectively in February). Therefore, the intensity of trade in the sector of government Ruble denominated bonds somewhat increased in March in comparison with February.

In this period, on the primary market there took place two auctions for the placement of OFZ AD 46018. Thus, on March 15 the supply of these securities was registered at RUR 6.9 billion, whereas the demand made about RUR 18.3 billion, and the amount of the placement at the nominal value made about RUR 11 billion. The weighted average yield of the placement made 6.9 per cent p. a. On March 22, the amount of the issue made RUR 4.05 billion, while the demand was registered at RUR 8.8 billion; as a result, the actual amount of placement made RUR 4.06 billion. The weighted average yield of the placement made 6.89 per cent p. a.

As on March 28, the amount of the GKO OFZ market made RUR 777.02 billion at par and RUR 764.03 billion at the market value. The duration of the GKO-OFZ market portfolio was 1967.13 days.

The Market for Corporate Securities The business situation on the stock market.

After several months of sustained growth, in March the Russian stock market entered the stage of adjustment, which at certain periods was replaced to consolidation at the levels reached by the respective moments. Within the first three days of March, the market demonstrated a sustained growth, which was determined by the improving situation on the world stock markets and a rise in oil quotations.

However, later there occurred a rather sharp drop in the RTS index, which continued until the middle of the month. This decline was to a significant degree caused by technical factors, since over the several last months the market had demonstrated a rather significant growth amounting to tens of per cents. Besides, in the situation, where significant domestic factors were absent, investors paid special attention to the external business situation the oil market and the stock markets of developed countries. In this period, oil was traded without any perceptible positive trend, whereas stock markets on the whole were characterized by moderately positive dynamics.

Over the third week of the month the decline was replaced by a speculative positive adjustment.

Among the general factors supporting the quotations there should be noted the stabilization of the world oil prices and a rather favorable situation regarding liquidity. Over the last but one week of the month, the stock market demonstrated mixed dynamics. The factors behind these developments were the mixed dynamics of oil quotations and the unclear situation on other developing markets. Besides, investors abated their activities in the expectation of a meeting of the US FRS, in the course of which the base interest rate was again raised to 4.75 per cent p. a.; however, this development was expected by investors. Besides, the end of the month was traditionally characterized by a deterioration of the situation with money liquidity, since banks had to make tax payments at that time.

On the whole, in the period from March 1 till March 29 of 2006, the RTS index decreased by 4.per cent and made 1391.31, or by 59.51 points in absolute terms. Over the same period, the turnover of the RTS trading with stocks included in the RTS index amounted to about US $ 1.45 billion, while the average daily turnover at the RTS made about US $ 76.44 million (about US $ 866.05 million and US $ 46.6 million respectively in February of 2006). Therefore, in March the activity of investors on the stock market was much higher than a month ago. The highest and the lowest volumes of trade at the RTS made US $ 134.8 million (on March 16) and US $ 32.79 million (on March 10).

Over the last month (from February 28 till March 29), the majority of blue chips demonstrated a decrease in prices. In March, the leader in terms of the downward movement of prices was the shares in YUKOS: after there had been taken the decision to appoint an external manager at the company, the value of its shares plummeted; as a result, the change in the quotations made 60.61 per cent by the end of the month. The prices of the shares in Tatneft, RAO UES of Russia, and Sberbank of Russia were characterized by significantly slower rates of decline, which made 11.92 per cent, 8.99 per cent, and 8.09 per cent respectively over the month. By the end of the period under observation, the prices of the stocks of Mosenergo, Rostelekom, Sibneft, and Surgutneftegaz fell by 6.8 per cent, 6.15 per cent, and 5.33 per cent respectively. The shares in LUKoil, Norilsk Nickel, and Gazprom demonstrated none or positive dynamics in March - 0.0 per cent, 0.78 per cent, and 3.8 per cent respectively.

Figure 3.

100 1 600.The total volume of trading ($) 1 500.The RTS Index 1 400.1 300.1 200.1 100.50 1 000.900.800.700.600.500.400.Figure 4.

Dynamics of the Russian Blue Chips from February 28 to March 29, 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% -60.0% -70.0% Change in price (%) points mln US dollars s 01.02.17.02.09.03.25.03.12.04.28.04.18.05.03.06.22.06.08.07.26.07.11.08.29.08.14.09.30.09.18.10.03.11.22.11.08.12.26.12.19.01.06.02.22.02.14.03.Ukos Tatneft Sibneft GMK LUKoil Russia Gazprom NorNikel Russia RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas In March, the list of leaders in terms of the volume of turnover at the RTS5 looked as follows: the shares in Gazprom (38.3 per cent), LUKoil (20.0 per cent), the RAO UES of Russia (12.9 per cent), and Sberbank of Russia (5.2 per cent). Therefore, the aggregate volume of trade with the shares of these issuers made about 76.4 per cent. Besides, according to the results of weekly trade, among the leaders in terms of the volume of turnover there were also the securities of Norilsk Nickel and preferred stocks of Tatneft.

As on March 29, the top five leaders of the national stock market by capitalization looked as follows6: Gazprom: US $ 194.44 billion; LUKoil: US $ 68.62 billion; Surgutneftegaz: US $ 51.67 billion;

Sberbank of Russia: US $ 27.31 billion; the RAO UES of Russia: US $ 26.14 billion; and Sibneft: US $ 20.25 billion.

The market for fixed term contracts. In March, the activity of investors on the RTS market for fixed term contracts (FORTS) significantly increased in comparison with the February indicators.

Thus, in the period from March 1 till March 29, the aggregate volume of trade in futures and options at the RTS amounted to about RUR 176.26 billion (303.276 thousand transactions; 6.66 million contracts) as compared with about RUR 142.83 billion (264.29 thousand transactions; 109.78 million contracts) registered in February.

As earlier, futures contracts accounted for the greatest percentage of transactions: the volume of trade in these contracts made RUR 157.76 billion (290.61 thousand transactions and 5.79 million contracts,) over the period under observation. As before, options were in a much lower demand: the respective amount of trading made about RUR 18.5 billion (12.65 thousand transactions, 870.92 thousand contracts). The maximum trading volume on this market was observed on March 9 and made RUR 11.73 billion, while the minimum trading volume (RUR 5.99 billion) was registered on March 29.

Corporate bond market.

In March, on the market of corporate and regional debts there again prevailed a moderately negative dynamics of prices, which resulted in a decline in the major indices of this segment of the market. In the beginning of the month, the quotations demonstrated a downward trend under the pressure of increasing yields of the market of the external debt, which later increased even somewhat more. At the same time, the most pronounced decline was observed with respect to the bonds of the first echelon.

Additional factors facilitating a growth in supply were the appreciation of the US dollar with respect to Ruble observed in the first half of March, as well as the deterioration of money liquidity in the banking sector.

In the beginning of the second half of March the situation somewhat improved due to a certain stabilization of the world markets, improvement of liquidity, and the change of the trend towards the appreciation of the US dollar against the Ruble to the opposite direction. At the same time, the level of activity on the market was rather high. Over the last but one week of March, the quotations of corporate bonds fluctuated without showing any clear trend. The factors behind this situation were the mixed dynamics of the US dollar, deterioration of the Ruble liquidity in the banking sector, as well as a certain depreciation of the Ruble against the US dollar.

From March 1 till March 28, the price index of corporate bonds traded at the MICEX7 decreased by 0.27 points (by 0.24 per cent), while the index of ten most liquid corporate sector bonds demonstrated a decline by 0.44 points (by 0.37 per cent). In the period from March 1 till March 24, the total turnover in the bond sector of MICEX made about RUR 15.3 billion and the average daily turnover was at the level of about RUR 898.89 million (about RUR 18.89 billion and RUR 1.11 million in February).

Therefore, the turnover of the trade with the corporate debt instruments of Russian companies significantly declined in comparison with the figures observed in February.

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 122.ZETBI-Corp ZETBI-Corp120.118.116.114.112.110.108.106.104.External factors affecting the dynamics of the Russian stock market.

The favorable situation on the world oil market persisted in March, the oil prices began to rapidly grow again. In the first half of the month the prices of oil futures increased and were traded at over US $ 60 per barrel. In spite of the fact that OPEC at its meeting held in the beginning of March left the official quotas without changes, whereas the fuel reserves in the USA reached the 7 years maximum, the growth in quotations was mainly determined by the tensions between Iran and the Western countries, as well as the clashes in Nigeria. In the second half of the month, on the market there was observed enhancement of volatility. Thus, while in the beginning of the third week of the month the quotations fell at the background of more positive than expected report on the oil reserves in the USA, later prices began to grow steadily after the publication of information that the US Armed Forces carried out special operations against Iranian guerillas attacking oil facilities, bad news on commercial reserves of oil and oil products. As a result of the impact all these factors had, oil was traded close to the upper limit of the technical band of US $ 60 to US $ 65 per barrel; by the end of the month this upper limit was exceeded because investors expected news about lack of gasoline reserves in the USA.

On the whole, in March the situation on the world stock markets remained favorable (see Table 1).

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