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The government securities market As seen by the March results, the quotations of Russian eurobonds exhibited multidirectional changes.

Early in the month, the substantial decline of the US share market as a result of a fall on the Chinese stock market urged investors to look for less risky assets, traditionally represented, first of all, by US treasury bonds. Therefore, the yields on US treasuries went down to 4.45 % per annum, but this did not promote any growth of the domestic eurobonds, because the growth of US market was caused by investors reorientation to less risky assets, while the bonds of the developing markets, including Russia, cannot be characterized as such. During the months second week the prices of US securities became somewhat lower, having responded to the released information concerning the labor market, which was rather favorable and demonstrated stable economic growth, and thus the probability of the basic rate becoming reduced was judged as low. As for Russian securities, they, on the whole, demonstrated only slight growth, while remaining, as before, among the most underestimated assets of all the developing markets.

In the beginning of the months second week, the volatility of quotations on the US debt market became higher, alongside growing yields. A new negative factor in terms of pricing became the news of problems arising in the high-risk segment of mortgage crediting in the USA. In the existing economic situation, these groups of borrowers were no more capable of servicing their previously taken mortgage credits, which now may result in defaults of mortgage companies and thus lead to problems in the US financial sector. Besides, investors were waiting for the results of the meeting of the US Federal Reserve System (FRS), at which the interest rate was to be established, and so their activity on the market was rather limited. As for Russian eurobonds, they, having been actually withdrawn from the dynamic of the world markets, remained sufficiently stable and displayed weak responses to the behavior of basic assets. Also, Russian eurobonds have been granted a credit rating by the Japanese Credit Rating Bureau and may very soon be supported by an inflow of funds from Japanese investors.

The dynamic of prices during the penultimate week in March was largely determined by the situation on the US market. The US FRS decided to leave the interest rate unchanged, while replacing its previous commentary by a new one, from which it cannot be clearly understood whether the rate would later be raised again, or, on the contrary, investors should expect its decline. As a result, the volatility of the market for US treasury bonds remained at a sufficiently high level, and yields became somewhat lower only toward the weekend. However, this produced little response on the part of Russian eurobonds, which once again conWhen 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.

firmed the overall trend of March that they were nearly entirely independent of the situation on the US market.

As of March 23, the yields to maturity of Russian eurobonds RUS-30 amounted to 5.61 % per annum, those of RUS-18 to 5.72 % per annum. As of the same date, the yields to maturity of Russian eurobonds were as follows: Tranche 8 of the Minfin bonds 4.4 %, Tranche 7 of the Minfin bonds 5.47 %, Tranche of the Minfin bonds 5.63 %, RUS-07 5.90 %.


Minfin bonds' yields to maturity in January-March 7.0% Tranche 5 Tranche 8 Tranche 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% FIGURE 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in January - March 6.3% RUS-2030 RUS-2007 RUS-6.0% 5.8% 5.5% 5.3% 5.0% in the month, the situation on the government rouble-denominated debt market remained moderately negative. Noticeable problems with liquidity in the banking sector, as well as the roubles weakening in respect to the USD, coupled with the forthcoming placements on the primary market, were all conducive to growing yields on the government bonds. The quotations remained relatively stable until mid-month, which, as before, was due to the problems with liquidity. The low trading activity was explained by the expectation of the primary auctions. The placements of OFZ were rather successful, nearly without any premium for the secondary market, which was the evidence of stability on the market of rouble-denominated government debt and of its possible growth after the improvement of the roubles liquidity. Only toward the months end the situation became somewhat improved, and the yields on government securities grew higher. At the same time, no obvious factors responsible for such growth could be seen; growth, most probably, was caused by the return of certain non-residents onto the Russian market, because the liquidity level was far from favorable.

In the period between 1 and 23 March, the aggregate turnover on the GKO-OFZ secondary market amounted to approximately 147.7 billion roubles, the daily average turnover being at the level of 9.2 billion roubles (having amounted to about 57.96 billion roubles, with the daily average turnover at the level of 3.billion roubles, in February). During February, two auctions for additional placements of OFZ were held.

Thus, on 14 March, there were auctions for the placement of OFZ-AD, series 46018 and 46020, in the sums of 12 and 13 billion roubles, respectively. The actual sums placed were 12.94 and 11.98 billion roubles, respectively, with the weighted average yields at the level of 6.64 % and 6.91 % per annum.

As of 23 March, the GKO-OFZ market volume amounted to 940.95 billion roubles in face value and 939.77 billion roubles in market value. The GKO-OFZ market portfolios duration was 2066.35 days.

The corporate securities market The situation on the share market.

By the results of March, the Russian stock market demonstrated slight growth, because the dramatic fall of late February early March when, after a new historic high had been achieved by the RTS (1970.points), it began to decline rapidly.

At the very beginning of the month, Russian shares fell dramatically. The main cause of this dramatic slump on the market was the fall on the Chinese stock market after the official declaration of the Chinese authorities as to the possibility of introducing control over the transactions with the shares in Chinese companies, which, in their opinion, could reduce the probability of the appearance of a stock bubble on the market. In response to this declaration, investors began to withdraw their assets from the Chinese market, and then also from the markets of other developing countries, Russia including. As a result, the RTS index fell by more than 7% during the first week of March. During the next week, this trend was curbed, and the market managed to compensate for the fall to a certain degree. The quotations were sustained by oil prices, which were remaining sufficiently high, as well as the rehabilitation of the world markets. Besides, a certain role was played by technical factors: many shares, after their prices had fallen, became rather attractive in the medium and short term, and so cautious purchases were observed on the market. However, the positive adjustment was short-lived, and early in the second half of the month priority roles were once again taken over by external factors, which were not conducive to market growth. Thus, the international markets were once more displaying a downward trend, as well as oil prices. The growing prices of nickel and some other metals were supportive only for metallurgical companies. The uncertainty on the market associated with the expectations of the decision to be made by the US FRS concerning the level of the interest rate was producing a restrictive influence on the prices of assets. However, after the FRSs meeting where the interest rate was left unchanged, while the commentary suggested a possible lowering of the rate in the future in view of the problems faced by the economy, the global markets displayed growth, which also promoted the rehabilitation of the Russian market. An additional support to Russian shares was rendered by oil prices, which approximated the level of $ 60 per barrel toward the months end. Among the corporate news, noteworthy is the extremely successful placement of the additional issue of OGK-3, which was bought out by Norilskii Nikel at a price higher that the market one. This resulted in a noticeable growth of the shares of the RAO UES of Russia, which produced a noticeable influence on the dynamic of stock indices.


170 2 000.160 1 925.The total volume of trading ($) 150 1 850.The RTS Index 140 1 775.130 1 700.120 1 625.110 1 550.100 1 475.90 1 400.80 1 325.70 1 250.60 1 175.50 1 100.40 1 025.30 950.20 875.10 800.725.FIGURE 4.

Dynamics of the Russian Blue Chips from February 22 to March 23, 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Change in price (%) On the whole, in the period between 1 and 26 March, the RTS index grew by 6.53 %, which in absolute terms amounts to approximately 117.37 points. During the same period, the turnover volume of the shares incorporated in the RTS index was about $ 835.8 million, the average daily turnover being at the level of $ 52.24 million (against approximately $ 732.01 billion, with the average daily turnover at the level of $ 43.million, in February). Thus, the investor activity on the stock market in March became noticeably higher points mln US dollars s GMK LUKoil Rosneft Russia Gazprom NorNikel Russia RAO UES Mosenergo Rostelekom Sberbank of Gazprom neft Surgutneftegas than in the previous month. The indices of maximum and minimum turnovers in the trade system in March were $ 98.8 million (on 1 March) and $ 16.18 million (on 7 March), respectively.

As seen by the months results (from 22 February through 23 March), the rates of nearly all blue chips were demonstrating a decline in their market value. Thus, the leaders in terms of price decline were the shares in Gazprom neft, whose price fell by 1.41 %, followed by those in Rosneft ( - 6.87 %), Gazprom ( - 5.77 %) and Mosenergo (- 5.51 %). Somewhat lower rates of decline in prices were demonstrated by the shares in Surgutneftegas (- 1.98 %), Norilskii Nikel (- 1.45 %) and the Sberbank of Russia (-0.54 %). The shares in Tatneft, on the contrary, grew by 3.22 %, those in LUKoil by 4.1 %, and those in Rostelekom by 5.41 %, while the leader in growth became the shares in the RAO UES of Russia, whose price increased by 8.8 %.

In March, the group of leaders in the RTS turnover8 was as follows: the RAO UES of Russia (41.1 %), the Sberbank of Russia (11.9 %), Gazprom (10.1 %), Norilskii Nikel (7.7 %), and LUKoil (5.6 %).

The aggregate share of the transactions involving the shares in those companies amounted to approximately 76.5 % of the RTSs total turnover of shares.

As of 23 March, the five leaders in terms of capitalization on the domestic share market were as follows9:

Gazprom - $ 241.74 billion, Rosneft - $ 87.19 billion, LUKoil - $ 71.09 billion, the RF Sberbank $ 68.97 billion, the RAO UES of Russia - $ 55.56 billion, and Surgutneftegas $ 43.56 billion,.

The futures market In March, the investors activity on the RTS futures market (FORTS) became noticeably higher, as compared to the previous month. Thus, during the period from 1 through 23 March, the aggregate turnover of the RTS futures and options market amounted to approximately 382.95 billion roubles (673.02 thousand transactions, 1,007 million contracts), against 247.25 billion roubles (509.79 thousand transactions, 6.25 million contracts) in the corresponding period in February.

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 349.1 billion roubles (656.12 thousand transactions and 9.069 million contracts). Options were in much lesser demand the volume of trade in them amounted to approximately 33.84 billion roubles (16.89 thousand transactions and 998.05 thousand contracts). The peak trade volume on the futures market was 34.74 billion roubles (on 13 March), while the lowest trade volume amounted to 15.5 billion roubles (on 7 March).

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