Average yield of corporate bonds for. Review of Sberbank bonds: profitability and personal recommendations

I apologize for not writing for so long; I got very ill during the New Year holidays, so I had no opportunity to write on the blog. In this article I am going to summarize the statistics on the profitability of financial instruments in 2015, and I will summarize my personal results of the year.

Stock returns in 2015

Russian stocks performed well in 2015 compared to the dismal performance of the last four years. The MICEX index in 2015 grew from 1396 to 1761 points, adding 26.12%. The index value reached 1800 points, which has not happened since 2011. The MICEX 10 index grew by 30.28%, the RTS dollar index fell by -4.26%.

Among the sectors, the best dynamics were shown by shares of the innovation sector, chemistry and petrochemicals, as well as finance.

Leaders of growth/decline. Of the liquid shares included in the MICEX index, the shares of NCSP, Acron and M. Video grew the most over the year. Rusal, Dixy and NLMK fell the hardest.

Bond yields in 2015

2015 was a shock year for bonds as well. The increase in the key rate to 17% in December 2014 caused a strong drop in prices on the bond market. But in 2015, the rate was lowered and the fall was recouped: the total yield index of government bonds grew by 29%, corporate bonds grew by 18%, and municipal bonds by 16%.

Prices for Moscow real estate fell 6%; at the end of the year, the cost of a square meter of residential real estate in Moscow was 183 thousand rubles.

Precious metals behaved differently; while gold and silver rose, platinum and palladium fell.

Among mutual funds, the best investment was Eurobond mutual funds. Low prices for Russian Eurobonds at the beginning of the year and currency revaluation also affected this. Among the stock funds, I would highlight the Arsager Mutual Fund - a stock fund, since it is the best fund in terms of profitability, consisting only of Russian stocks. The rest of the funds included shares denominated in foreign currency, which means that some share of their profits was a currency revaluation.

Official inflation in 2015 was 12.9%. Below is an updated table with real returns on assets, that is, taking into account inflation. It shows that over the past 10 years, only gold, silver and real estate have generated real returns. The profitability of shares and real estate is shown without taking into account dividends and rent, so you can add 3-4% to the table figures. The dollar and euro, despite strong growth over the past two years, have not brought real profits.

Updated yield map:

My results of the year

Briefly, my results for 2015 are as follows: total income increased by 11%, of which active income by 3%, passive income (dividends, coupons, interest) by 62%. Spending overall decreased by 11%, while grocery spending increased by 19%. My savings ratio was 0.37, meaning I didn't spend 37% of my active income. Due to income growth and cost reduction, cash flow increased by 43%. The return on the investment portfolio calculated using the formula was 43.6% (if calculated using a rough formula, then 39.8%). The average annual return on the stock market for the entire investment period is 25%.

Innovations in legislation for investors.

Since the beginning of 2016, new laws affecting investors have come into force.

1. From January 1, 2016, there is no longer a difference between the refinancing rate and the key rate. Now the refinancing rate is equal to the key one. Currently the key rate is 11%. In the future, changes in the refinancing rate will occur simultaneously with changes in the key rate of the Bank of Russia by the same amount. Based on the refinancing rate, penalties for taxes and fees, as well as personal income tax on bank deposits are calculated.

Deposits with a rate above 16% per annum will be subject to income tax (NDFL) of 13%. Last year, the State Duma, after increasing the key rate of the Central Bank of the Russian Federation, established a preferential tax threshold for deposits. From 2016, the law ceases to apply, that is, as before, a 35% tax will be imposed on income received above a rate equal to the refinancing rate + 5%. Since now the refinancing rate = the key rate, tax-free income is limited to 16%.

From January 1, the tax-free period of real estate ownership will be increased from 3 to 5 years. There is another innovation that will complicate the resale of an apartment. Currently, tax is calculated based on the amount specified in the sales agreement. Starting from 2016, they will find out which amount is greater: the cadastral amount or specified in the contract. After this, the tax will be calculated based on the larger amount. If the cadastral value is greater, then it is multiplied by a factor of 0.7, the cost of purchasing the property is subtracted, and tax is calculated from the difference. The law is valid for apartments purchased after January 1, 2016.

From January 1, it will be prohibited to place more than 15% of individual investment funds on bank deposits (according to clause 9, article 10.2-1 of the law on the securities market); before 2016, there were no such restrictions.
In addition, from January 1, it will not be possible to buy securities of foreign issuers using IIS. The exception is securities that are sold in Russia.

For the purchase and sale of cash currency in banks or exchange offices in the amount of more than 15 thousand rubles. Now you will have to provide not only your passport, but also other personal data: TIN, phone number, address.

Over the weekend, preparing for the upcoming webinar about “Portfolio,” I was playing around with numbers and, just for fun, downloaded data on the MICEX Government Bonds Index from the MICEX website - MICEX RGBI TR - http://micex.ru/marketdata/indices/state/today .

I admit, a comparison of the yield figures for this index with the yield of corporate bonds MICEX CBI TR - http://micex.ru/marketdata/indices/bonds/corporate (as well as other instruments) surprised me at first.

Both indices have been calculated by the exchange since 2003.

Historical average annual return of the government index. bonds (for the period from 2003 to 2015 inclusive, 13 full years) was almost two percent higher (!) than the index of corporate debt securities.

What is no less interesting is the volatility of the government index. bonds also turned out to be much higher than that of the corporate securities index - this is easy to see in the charts presented above. The standard deviation calculated from annual results for CBI is 8.5%, while for RGBI it is as much as 14.5%.

To be honest, I initially expected to see the opposite picture. According to my expectations, the profitability and risk of government. bonds should have been lower than corporate bonds. After all, the state, both logically and according to rating agencies, should be a more reliable borrower than other issuers of debt securities on its territory.

The key to higher returns and higher risk appears to lie in the structure of the government index. bonds. If you look inside, at the composition of the government index. bonds, you can find there securities with a maturity date right up to 2036 (20 years!). But corporate bonds of Russian issuers, as a rule, have much closer maturities - on average about 3 years. Thus, the average maturity of securities in the government index. RGBI bonds will be several times higher than those of securities in the CBI corporate bond index.

The government has a longer average maturity. securities leads to an increase in interest rate risk, which begins to sharply increase the volatility of quotes for securities with long-term maturities. When interest rates rise, the prices of long-term issues will fall sharply in price; when interest rates fall, on the contrary, they will rise sharply. This leads to higher price volatility, i.e. to higher market risk. And for taking this risk, investors logically demand higher returns.

I honestly admit that I am not a great expert on the bond market, and especially the government securities sector. Are there any bond market professionals among my readers who can confirm or refute my guess about the reasons for such superiority in the yield of the government securities index compared to the yield of the corporate sector bond index?

Personally, I am more interested in those securities that are shown in green on the chart. :)

I specifically left on the chart also data on inflation and on deposits (data from the Central Bank of Russia on time ruble deposits for up to 1 year - unfortunately, the only version of statistics for which the Central Bank of Russia has a history since 2002) - for the edification of those who still naively considers bank deposits to be the best way of “investment”. It is easy to see that the real return on deposits for the period under review turned out to be 2% lower than inflation. Those. real owners of bank deposits lost their money on average.

We’ll talk about what assets should be in a properly formed investment portfolio at the webinar, which starts on Monday.

We selected several of the most popular assets that are usually included in investment portfolios, and calculated their average returns for different periods of time (1-7 years). It turned out to be quite an interesting picture.

Selected for comparison:

• Real estate in Moscow (cost per square meter in rubles)
• Real estate in the USA (ETF Vanguard REIT Index Fund)
• Bonds of the Russian Federation (Unit Fund Otkritie Bonds)
• MICEX Index (Unit Fund Otkritie MICEX Index)
• US Bonds (ETF Vanguard Intermediate-Term Bond Index Fund)
• S&P 500 Index (ETF SPDR S&P 500)
• FTSE Europe Index (Vanguard FTSE Europe ETF)
• Gold (ETF iShares Gold Trust)
• Silver (iShares Silver Trust)

We assessed the return on most assets based on the performance of index funds, which are the most accessible and quite accurately track their index without the use of derivative instruments (the value of the funds is increased by the amount of dividends received).

Unfortunately, there are still no index mutual funds for Russian bonds and real estate. Real estate was assessed as the average cost per square meter of housing in Moscow in rubles. To assess the profitability of Russian corporate bonds, the Otkritie Bonds mutual fund was chosen somewhat “voluntaristically”, because in recent years it has shown good quality of management.

We deliberately did not compare the indices with each other directly, because most do not take into account dividends paid.

Graph of growth in the value of invested 100 rubles. for the last 7 years can be seen in the following graph. The gray shadow indicates the accumulated inflation (79% over 7 years).

For clarity, on the chart we showed only the 6 most popular assets and inflation.

A complete list of average asset returns can be seen in the summary table.

It should be emphasized that all figures in the table are average annual returns(not accumulated).

For each time period, the asset that showed the best result is highlighted in yellow, and the worst result is highlighted in red.

It is easy to notice that the weakest returns for almost all periods of time (1-7 years) were in Moscow real estate. This is probably due to the rapid increase in prices per square meter in previous years (2000 - 2007).

As statistics once again confirm, it is difficult to single out a clear favorite, although he has shown quite strong results in recent years S&P500 index. Let's say, if you bought this index 3 years ago, you could get a profit of 48% annually (in rubles). It is not surprising that recently most expectations are associated with the correction of the S&P500.

Overall high returns all American funds is explained primarily by the sharp devaluation of the ruble in 2014 and, consequently, by the increased yield of the dollar itself in the last year and a half. In other years, as can be seen in the chart, “keeping the dollar under your pillow” (without investing in any assets) lost to ruble inflation at most intervals. In most cases, holding a dollar without investing is unprofitable.

Showed the highest growth in 7 years American real estate- 667%. Such a high figure is obviously related to the chosen period of time, because it began in 2008, coming at the peak of the real estate crisis in the United States. In subsequent years, as can be seen from the graph, real estate grew at a rate that was inferior to the stock market.

The only European asset is an ETF tracking a broad FTSE Developed Europe All Cap Index(includes shares of companies in Germany, England, France, Spain, etc.), showed results approximately at the level of investments in Euros. The European economy continues to stall despite monetary easing...

Russian MICEX index grew well in 2008 - 2010, outperforming other indices. But after 2011, the MICEX only fluctuated around its maximum values. It is interesting that despite the absence of fundamental reasons for growth, Russian shares fully “recovered” the rise in ruble inflation and were able to protect the savings of those who invested in this index.

Average inflation rates for different periods of time are also interesting because they show the minimum return on a deposit sufficient to save money. As you can see, over the last year the minimum required return on the deposit was 15%; over longer periods of time, a return of 9-10% was generally sufficient to save money.

Mutual Fund of Russian corporate bonds under the management of the Otkritie Management Company, at all periods it showed profitability exceeding inflation, and in the last year it exceeded it by 1.5 times. This may indicate the good quality of management of this particular mutual fund, but it is unlikely to indicate the quality of the bonds themselves, because The fund is not an index fund.

Gold and silver all 7 years continued to be at very low dollar price levels. The ruble price regularly followed the process of devaluation of our currency. Therefore, precious metals for many at this time became a good hedge against inflation, but did not bring income comparable to other non-commodity assets.

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For those who read a lot and count well

The card shows that Tinkoff BO-7 is an issue of ruble bonds with a par value of 1000 rubles with a semi-annual coupon. That is, you can give Tinkoff Bank money in amounts that are multiples of 1,000 rubles, and the bank will pay off debts every six months.

The rate of the first three coupons is set at 11.7% per annum, or 58.34 rubles. That is, for every 1000 rubles, Tinkoff Bank will pay you 58.34 rubles every six months.

The bonds will be repaid in June 2021. However, at the end of the third coupon period, which ends on December 28, 2017, there is an option for early redemption if you so choose. On the card, the opportunity is indicated by the word put in the line of the third coupon. Here's how it's formulated in the documentation:

“The issuer will be obliged to purchase exchange-traded bonds according to the demands of their owners, stated during the last five working days of the third coupon period.”

The possibility of early repayment is called an offer or put option.

Thanks to the offer, the five-year graduation becomes a two-year one. That is, holders of Tinkoff BO-7 bonds can receive their money not in 2021, but already in 2017, if they want.

Before the offer begins, the bank will announce the rate for the next coupons. If the rate is attractive, then the bonds may not be redeemed, but will continue to be held.

What is an offer or put option?

Many Russian corporate bonds have put options. This means that at a certain period the bondholder has the right to present the bonds for redemption at par. That is, to return ahead of schedule the money that he seemed to have lent.

Most often, the issuer grants this right when the coupon rate is not determined for all coupon periods. As in the case of Tinkoff Bank: for the first three coupons it guarantees a rate of 11.7% per annum, and we’ll see what happens next in a year and a half.

When the issuer announces a new batch of rates, they may turn out to be unprofitable for the holder. In such a case, the holder must have the opportunity to exit the game. That's what offers are for.

There are issues for which all coupons are known, but offers are still provided. This is done to reduce the risks of bondholders and thus make the bonds more attractive. The risk is reduced because if the rate drops below the market rate, holders will be able to present the bonds for redemption.

How you pay off your put bonds depends on your broker. For some, the procedure costs about 1000 rubles, but the broker does everything for you. For others, the procedure is free, but you need to notify the issuer yourself that your bonds need to be redeemed. Then, on the appointed day, in a special window in the exchange terminal, make a transaction with a special agent.

In addition to the broker's commission, there may also be a commission from the depository - the company that sort of stores your securities. The amount of such a commission cannot always be known in advance, but it is comparable to the price of presentation for redemption through a broker.

Profitability

For a private investor, the yield on bonds on the exchange will never be equal to the coupon yield. The fact is that the market rate is constantly changing, and the price of bonds changes after them. I talked about the effect of price on profitability

You can find out the current price and profitability on the stock exchange. To do this, we look at the prices and yields of previous transactions or existing orders. Roughly speaking, on what terms are bonds currently traded in fact, and not on paper?

In my QUIK exchange terminal there is a table with the twenty best orders to buy and sell. Red lines - sell, green - buy:

In the picture, the price of the best offer for sale is 100.80%. The yield calculated by the exchange at this price is 11.21%. This means that buying and holding these bonds until maturity on the offer will bring 11.21% per annum.

Bond yield calculated by the exchange

In the article “”, for simplicity of presentation, I calculated the so-called simple profitability. By analogy with a deposit, this is the return on the deposit without interest capitalization.

But the Moscow Exchange calculates the so-called effective profitability. The effective yield is the yield taking into account the reinvestment of coupons at the same rate at which the initial investment was made. Continuing the analogy with the deposit, this is a deposit with interest capitalization. The profitability with capitalization is higher.

The calculation of effective yield is based on a number of assumptions. For example, that you will be able to reinvest coupons at the same rate. In practice, this is not always feasible: the rate may change, and your coupon payments with a small package may not be a multiple of the price of the bonds to purchase.

Also, the effective yield is considered relative to the price offered on the exchange, and not the nominal one. If you remember, Tinkoff Bank bonds had a yield of 11.7% when issued, and now we see a yield of 11.21%. Where did the 0.49% go? To understand this, you need to look at the price at which this bond is sold: 100.80% of par. That is, a bond with a face value of 1,000 rubles is sold for 1,008 rubles. This overpayment reduces the effective yield.

If you want not to overpay and increase profitability, you will need to buy bonds at a reduced price, but there must be some compelling reasons for this - for example, a sharp change in rates in the economy. Read about this in the “Market Risk” section.

One way or another, the exchange calculates the effective profitability, and this must be taken into account when evaluating.

Having found out the yield of a bond issue based on the price on the stock exchange, we need to somehow evaluate whether this is a good yield and whether it is worth buying such bonds. Usually in this case bonds are compared with government bonds.

For comparison, the issue of OFZ 25081 with a fixed coupon and maturity in January 2018 is suitable. The current yield of this OFZ issue is 8.8% - this is lower than that of Tinkoff BO-7. It turns out that Tinkoff Bank bonds are more profitable than the Ministry of Finance bonds.

The difference in profitability between the Ministry of Finance and Tinkoff Bank is explained by different credit risks. Tinkoff Bank has a higher risk.

Credit risk

Credit risk is the risk of default by the issuer, that is, the risk that the company will stop paying coupon payments or will not return the principal of the debt - the face value of the bond.

You can quickly assess credit risk using the credit rating of an international rating agency. Ratings are assigned to issuers, but individual bond issues may have their own ratings. The presence of a rating from an international agency already indicates a certain minimum quality and size of the issuer’s business.

Tinkoff Bank, according to its website, has a speculative rating of BB− with a neutral outlook from Fitch and a speculative rating of B1 with a neutral outlook from Moody's.

Due to higher credit risk, the yield on Tinkoff Bank bonds is higher than on OFZ bonds. The return difference is the risk reward that investors receive.

How is credit risk realized?

An example of the implementation of credit risk is the story of the Peresvet Bank.

At the beginning of October 2016, the Fitch agency pointed out some of the bank's risks, and the credit rating was not downgraded.

On October 13–14, news appeared about the disappearance of the chairman of the bank’s board. The Central Bank, which usually does not comment on the work of existing banks, issued a reassuring statement. Around the same time, a collapse in prices for Peresvet bonds began.

Prices for Peresvet bonds collapsed for an obvious reason - investors suddenly lost faith. The belief that the bank will pay its debts.

As I write this, Peresvet bonds are trading at 280 rubles per 1000 face value with a yield of approximately 380% per annum:

If the Central Bank revokes the bank's license, the circulation of bonds on the stock exchange will be stopped. After this, there will be no place to find out the price - the further fate of the invested money will no longer concern the exchange.

Another striking example from the past is the cessation of the activities of Transaero, whose bonds are now traded at 20 rubles per 1000 rubles of face value, that is, two kopecks per ruble:

Compared to Transaero, Peresvet's bonds are still very expensive.

Market risk

In addition to credit risk, there is also market risk. This is the risk of changes in the situation in the financial market, in particular the risk of changes in interest rates in the economy.

This risk affects both government and corporate bonds equally. It is associated with rates in the economy: if they fall, then bonds become more expensive and yields fall. And vice versa.

How market risk is realized

Let's imagine that on October 31, 2014, we invested in government bonds with a maturity of one year and the yield of 9.5% existing at that time.

Just a month and a half later, on Black Tuesday, December 16, 2014, the Russian Central Bank, against the backdrop of the collapsed devaluation of the ruble, immediately raised the key rate by 6.5 percentage points to 17% per annum.

The key rate, among other things, affects deposit rates and the profitability of many other financial instruments. Previously, roughly speaking, you had deposits at 9% and bonds at 9.5%. And now - deposits at 18% and bonds at 9.5%. Bonds with such yields suddenly become unprofitable.

If we now want to sell our bonds, we need to offer the market some competitive conditions, that is, to catch up with the yield of 18%. This can be done either by changing the coupon amount - that is, paying more on the debt - or by changing the value of the bond itself.

We cannot change the coupon amount, because we are not the Ministry of Finance. But we can change the price of the bond, that is, sell it cheaper than we bought it. Roughly speaking, we bought for 999 rubles, and will sell for 990. By reducing the price, we bring the profitability up to a competitive one.

What is the result: the rate has increased, competition among financial instruments has intensified. If we sell our bonds now, we will have to lose money.

Another option is to hold the bonds until maturity. That is, wait until the payment deadline comes, the Ministry of Finance will pay us the last coupon and return 1000 rubles for each bond. But the yield of 9.5% per annum at the time of maturity may be lower than the market one.

The opposite situation may also be true: in December 2014, people with strong nerves could buy the ones we were already familiar with. This means that such profitability will remain all the way until maturity. Compared to the current 9% yield, this is generous.

I looked at the example of government bonds because historical data on government bond yields is easily available on the Moscow Exchange website. The same thing happened with corporate ones.

Profitability after taxes

The effective yield of Tinkoff BO-7 according to exchange calculations was 11.21%. However, unlike government bonds, corporate coupons will have to pay personal income tax (NDFL). The issuer or depository will deduct taxes, and the coupon will come to you already cleared of taxes. And this radically changes the picture.

Excluding personal income tax, the effective yield of Tinkoff BO-7 will be about 9.20% per annum, and the simple yield - 8.63% per annum. Thus, personal income tax sharply brings the profitability of the Tinkoff BO-7 corporate issue closer to the profitability of state OFZ 25081. At the same time, the difference in risks is significant.

Don't forget about deposits. Depending on the terms of replenishment and capitalization, the deposit rate at Tinkoff Bank for the same 14 months will range from 6.69 to 8.29% per annum.

2015 was a record year in terms of income for OFZ investors over the past ten years, while the Russian market provided them with the highest total income among all local emerging markets

Moscow. December 25th. website – Despite the minor sentiments of the first months of 2015, in general it turned out to be successful for the Russian bond market and even came close to the results of the peak year of 2013, when bonds (corporate, municipal and state) were placed for 2.7 trillion rubles. This year, according to Rusbonds, 2.4 trillion rubles worth of bonds were placed on the Russian market. At the same time, the year became a record in terms of income for investors in OFZs over the past ten years and allowed the Russian market to become a leader among all local emerging markets, providing the highest total income. Investors and issuers were also pleased with the activity of initial corporate offerings. It even made it possible to compensate for the slow growth of lending and refinance debt in conditions of limited access to external markets.

However, despite the numerous successes of this year, market participants are heading into the next year with less optimism. In their opinion, the first half of the year may be especially difficult.

Growth factors

The key impetus for the development of the bond market was provided by the influx of pension money. Non-state pension funds were active investors in the local bond market due to the receipt of “unfrozen” pension savings in the second quarter of 2015, as well as savings contributions from former “silent people” from VEB State Management Company amounting to about 600 billion rubles. According to Gazprombank estimates, a third of this amount, or about 177 billion rubles, was allocated to local bonds. At the same time, according to the bank, 150 billion rubles were invested in corporate bonds.

For example, in May-June, reacting to the emergence of “long-term” pension funds, Rostelecom, Bashneft, Magnit, a number of structures of Rosseti, and Enel Russia immediately came out with placements. Placements were active from May to September, including during the traditionally quieter summer months for the market.

The gradual reduction of the key rate from a record high of 17% to 11% by the end of the year also interested many participants in fixing new price targets. As a result, there were a lot of placements throughout the year, but October turned out to be a record-breaking month, when market conditions were most favorable.

The third factor that forced investors to take a closer look at the local bond market is the limited access of Russian companies to international loans due to sanctions. Transneft, VEB, Rosselkhozbank, and Gazprombank were among those listed on the ruble bond market this year. In addition, ruble bonds helped many companies in the absence of access to syndicated loans and the Eurobond market.

The status of the Russian bond market was also enhanced by the Ministry of Finance’s proposal in 2015 of new instruments: OFZs with a coupon tied to the RUONIA rate, as well as bonds with a par value indexed for inflation. Almost all issues were in high demand among investors, which allowed the ministry to place bonds worth 712 billion rubles on the primary market. As a result, the internal borrowing program turned out to be even slightly overfulfilled: the volume of internal net loans in 2015, taking into account repayments, amounted to 92 billion rubles (80 billion was planned). Following the subsovereign, many companies are thinking about issuing similar bonds.

“This year can be considered quite successful for local bonds. Market liquidity has almost returned to the level of 2013,” says Alexey Konochkin, deputy head of the debt capital markets department at VTB Capital.

Market leaders

The top ten main placement organizers have undergone significant changes over the year. Thus, according to data as of mid-December, compared to 2014, the following dropped out of it: VEB-Capital, Unicredit Bank, Ronin. Instead, the top 10 now includes Sovcombank (7th place), Svyaz-Bank (8th place), and Zenit (10th place). The top five are as follows: 1st place - Gazprombank, 2nd - VTB Capital, 3rd Sberbank CIB, 4th - BC Region, 5th - FC Otkritie Bank. Sixth place, as in 2014, is occupied by Rosbank.

The reason for the ranking adjustments is largely due to structural changes in the market (pension money has increased the number of private placemant or sales of issues to a limited number of investors), as well as personnel changes among the main players, in particular, the transfer of part of the DCM team from Otkritie to Sovcombank, which decided to actually create this direction . The competition was so fierce that changes in the leadership list took place in just a few months.

The main thing is to save?

The number of restructurings and defaults in the bond market in 2015, although incomparably lower than in the crisis year of 2008, kept bond owners in constant tension. The losses were calculated, in particular, by investors in Mechel (restructuring), UTair (restructuring), Transaero (default) and a number of banks - Nota, Svyaznoy, Probusinessbank, Vneshprombank. However, the disappointment of the year for many investors, primarily foreign ones, was the news of VEB’s debt problems. In this regard, standard events that were traditionally easy for VEB and its subsidiaries - such as an offer or a secondary placement - did not go so smoothly at the end of the year.

According to General Invest asset manager Denis Gorev, next year will be richer in comparison with this year in terms of negative events, first of all for corporates, and then for banks. “If this year there were isolated restructurings and defaults, then next year there will be more such events. In this regard, in my opinion, 2016 will be a year not of increase, but of preservation. This is the main investment idea,” he says, recommending “to sit in short OFZ."

How did you make money?

The traditional indicator of market returns is indices. According to the Moscow Exchange, the weighted average yield of the government bond index in 2015 was 10.11%, the broad corporate bond market index - 11.51%, the municipal paper index - 11.96%, the corporate bond index with a "BB" rating - 14.86 %. In 2014, all these indices, by the way, showed negative weighted average returns.

Among the most profitable business ideas of the past year, investors name the acquisition of long-term OFZs. “The strategy for purchasing OFZ 46020 (2036) has given about 14% since July. Moreover, those investors who entered these bonds at the end of 2014, at the peak of the crisis, when it was trading at about 55% of the nominal (now it is trading at 77% of the nominal value), they could earn about 40% per annum,” clarifies Denis Gorev.

The yield on corporate ruble bonds in the second half of 2015 exceeded the rates on deposits of legal entities. According to Gazprombank, in comparison with the average rate of annual deposits of legal entities, corporate bonds began to provide a positive spread from June 2015, in particular, in September it reached 175 bp.

Year of Hope

According to Rosbank's estimates, the volume of initial placements of corporate and municipal securities in 2016, subject to a rebound in oil prices in the first half of the year, will exceed this year's results by 20%. According to Gazprombank and Region calculations, redemptions of local bonds, execution of put options and coupon payments will be an additional source of growth in the local bond market. Moreover, the potential volume of this source is 2.1 trillion rubles, including funds from the redemption of local bonds in 2016 in the amount of about 1.6 trillion rubles.

The main intrigue of the ruble market in 2016 is the pace of easing of the Central Bank’s monetary policy. Market participants expect the regulator to resume rate cuts, if not at the end of the second quarter of 2016, then in the second half of the year. By the end of the year, according to forecasts of the main market participants, the key rate will be 8-9%. This will allow yields to fall next year.

As Anton Kiryukhin, director of the debt capital markets department at Rosbank, told Interfax, in 2016 more than half of the top 50 Russian companies plan to enter the ruble bond market, including exporters, large infrastructure and telecommunications companies.

Drivers of growth

Despite the extension of the moratorium on the transfer of contributions, the market is highly counting on pension funds next year. NPFs will be active due to the redistribution of funds from the “silent people” from VEB’s State Management Company. Market participants estimate the volume of these funds at 230-270 billion rubles. In addition, it is expected that NPFs will direct their investment income (coupon income), as well as part of the funds from bank accounts and deposits, to the debt market. Thanks to these income items, in total, according to the most optimistic estimates, NPFs can allocate about 600 billion rubles to the ruble bond market.

Banks will remain major players in the bond market. They will buy bonds due to the lack of quality borrowers and the growth of the deposit base, outpacing the growth of loan portfolios. In particular, credit institutions participating in the additional capitalization program through OFZ may show activity. “When rates fall, many companies will want to raise funds for a period of 3-5 years. At the same time, I do not expect bank placements, especially from large banks, in the first half of the year due to excess accumulated liquidity,” says the head of the sales department of structured products and debt capital market products UniCredit Bank Mikhail Radomyselsky. UniCredit’s own plans for the next year are restrained, but the bank plans to enter the primary placement market in order to maintain the current volume of bonds in circulation.

Market participants expect that the development of the sector will be helped by the exemption from personal income tax on coupon income on corporate bonds. “Our clients with a fairly large fortune, I think, will react promptly and quickly begin to transfer their funds from deposits to bonds,” says Andrey Nikityuk, Chairman of the Board of General Invest. So, if General Invest clients currently keep about 70% of their savings in deposits, and 10-15% in bonds, in the future the share of bonds, according to the company’s calculations, may increase to 50%, as it is now in European countries.

Market participants are also inspired by the authorities' constant statements about the policy towards "bondization", which, they hope, will finally begin to be gradually implemented at the regulatory level.

“In our opinion, next year also has every chance of being successful.(...) Confidence in such a scenario gives the market the shape of the OFZ yield curve, which currently has a pronounced inverse nature,” emphasizes Alexey Konochkin.

However, portfolio managers' expectations are more restrained than those of bankers. The Kapital Management Company notes, in particular, that if a month ago there was a base scenario with a stable trend towards a rate reduction, then by the end of the year it became optimistic (the probability of its implementation is about 30%). “2016 will be a cautious year, a lot will depend on oil prices. We do not expect stable trends characteristic of the outgoing year; there are fears that the average annual oil price will fluctuate between $35-45 per barrel. In this case, we expect a reduction in the key rate of the Central Bank up to 10%,” says Dmitry Postolenko, portfolio manager at Capital Management Company. Moreover, in the first quarter the management company does not even rule out a correction if oil fluctuates around $35 per barrel. The second quarter, according to these estimates, will be a period of stabilization.

OFZ or corporate bonds?

In the past year, there were clear trends, in particular, towards the weakening and strengthening of the ruble. Next year, according to market participants' expectations, will be volatile and difficult for investors. The most interesting investments may be medium- and long-term bonds with fixed federal loan coupon rates, as well as corporate bonds of high-quality borrowers. “According to our estimates, by the end of 2016, the yield on OFZs may decrease to a level of about 8.5-9% per annum, on sub-federal bonds to 9.5-10.5% per annum. In the corporate bond market, we expect the yield on first-tier bonds to decrease to a level of 9 5-10.5%, the second - up to 10-10.5%, the third - 11-12% per annum,” says Alexander Ermak, chief debt market analyst at Region Group.

However, there are those who still consider long OFZs attractive for investment. Thus, the chief portfolio manager of Aton Management Management Company, Evgeny Smirnov, believes that in the ruble segment, given the current situation, OFZs with a long duration are relevant, even despite the possibility of correction in these securities. Dmitry Dudkin, head of the Uralsib debt instruments analysis directorate, also believes that long-term OFZs will continue to outperform the market next year. “In our opinion, securities with a long duration are more attractive than corporate issues and will provide investors with a return of 15% over the annual horizon. At the same time, the income on OFZs with a floating rate can be 10%. Compared with OFZs, corporate securities are less attractive not only from the point of view expected income, but also in terms of the risk-return ratio,” he believes.

The manager of Capital Management Company, on the contrary, believes that a rally in long OFZs, characteristic of this year, should not be expected. “It will be possible to make money on volatility, which, of course, is much more difficult than on stable trends. In particular, if rates do not decrease, then OFZs linked to RUONIA may be interesting, and after the first quarter, OFZ-INs will probably become attractive as well.” , he says.

Uralsib also advises investors to buy high-quality corporate Eurobonds from Russian issuers. “We see good potential for lower spreads to the sovereign curve,” he explains. “If the buyer of Eurobonds is a bank, a good idea is to attract financing in rubles (for example, a repo with the Central Bank) followed by a swap in dollars. Thus, you can get funding for a position in Eurobonds not much more expensive than the Fed rate, which will allow you to earn 8- 9% in dollars in 2016,” adds Dmitry Dudkin.

First Deputy Chairman of the Board of Sovcombank Sergei Khotimsky believes that the risk to Russia remains high, the yield curve is monotonically convex, so carry trade is still relevant in Eurobonds. “There are certain risks of rates rising in the US faster than the markets expect. In the ruble market, the carry trade strategy will not bring significant profits, and if oil prices do not show moderate growth, then losses are possible,” he notes.