VEB thinks it's premature to abandon floating rate bonds - deputy chairman

MOSCOW. March 14 (Interfax) - VEB believes it is premature to turn away from floating rate bonds, despite the change in the trajectory of interest rates, the Russian state development corporation's deputy chairman, Konstantin Vyshkovsky said.

"Amid the tightening of monetary policy, as you know, last year became the year of instruments with a floating rate, including for VEB. All the bond issues we placed last year were with floating coupons, pegged to the RUONIA. The overall amount of VEB's medium and long-term bonds totaled 415 billion rubles. And despite growing pressure on market participants, on the growth of yields, we managed to keep spreads at acceptable levels," Vyshkovsky said in a session at the Russian Financial Market Forum organized by ACRA.

"In the second half of the year, despite their protective nature, floaters began to significantly decrease in price. The index for OFZ-PK [floating rate federal government bonds] fell by more than 350 basis points. For corporate floaters, the decrease was up to 600 basis points. Retail investors' role on the market grew, their activity increased. Factors such as high interest rates on bank deposits, the high return on money market funds, these factors did not favor the growth of demand for bonds. And subsequently, in light of the already changed market consensus forecast, with the start of this year, we again saw issuers entering the market with fixed rate bonds," Vyshkovsky said.

Despite the change in the trajectory for interest rates, current rates still remain very high, he said. "We believe it is premature to abandon floaters at this point," Vyshkovsky said.

He also again noted the relevance of the structure of the new type of OFZ-PK that the Finance Ministry offered the market at the end of last year.

"Certainly, the old structure of floaters, which did not factor in capitalization of interest, began to lose out to money market funds, for example, and virtually stopped being relevant. We also changed the structure of our instruments and will keep issuing specifically this type of instrument, pegged to the so-called fixed-term RUONIA, in our work going forward," Vyshkovsky said.