So, the Central Bank raised interest rate by 0.25 punt to 7.5% - which means that the bonds fell, and the yield on them increased. We expected approximately such a development of events and wrote about it in our VK group and also recently published an educational article on bonds on the topic of such a concept as .
Now it's time for the promised bond review. Today there will be only the first part, where we will generally consider those OFZs that may be interesting now, and in the second part we will already give a specific recommendation and buy something in the portfolio ourselves.
OFZ on the Moscow Exchange
Unfortunately, now there is no access to the QUIK terminal - therefore, we will use the data from the Moscow Exchange website (there is no duration indicator and this is bad, also therefore there will be a 2nd part of the review).
Why are we going to watch the OFZ? After all, there is more corporate bonds which may have higher returns. Yes, this is true, but the risks there can be much higher. On the whole, we proceed from the fact that OFZ is the most reliable tool investment in Russian stock market(more reliable than a deposit in Sberbank). And this most reliable tool can give a very good profitability. Therefore, we take OFZ, and for more risky investments, we have stocks.
On the website of the Moscow Exchange, I found 39 OFZs. Please note that I have sorted the list by maturity date, from nearest to farthest. That is, as we already wrote in our article about - at the top of the list there will be bonds with a smaller duration (= risk), and at the bottom with a larger one.
OFZ list
I won't cover everything here - you can do it yourself. I'll quickly go through the list and highlight those bonds that might be of interest, but first we need to talk about the search criteria and, most importantly, our selection strategy.
OFZ Bond Selection Strategies
In fact, there are only 2 strategies, in one we increase the Central Bank rate (bonds fall, the yield grows), and in the second it decreases (bonds rise, the yield falls).
Strategy 1 "The Central Bank rate will increase in the future"
In this case, we expect that the Central Bank rate will increase in the future, which means that bonds will fall (so that their yield increases). Then it's better for us:
- Buy bonds with low duration (near) as they will fall less (less loss from change market price)
- Buy bonds at a price cheaper than par (since in the event of a fall, we will have the opportunity to simply wait for redemption at par)
- Buy OFZs with only a small part of the funds (in the future, bonds will become even more profitable and you need to leave funds in order to buy more later)
Strategy 2 "The Central Bank rate will fall in the future"
In this case, we expect that in the future the Central Bank rate will fall, which means that bonds will grow (and their yield will fall). Then it's better for us:
- Buy bonds with a high duration (long), as they will grow more (more profit from a change in the market price), and we will receive a coupon longer
- Buy bonds at a price as low as possible face value (you can either sell more expensive, or calmly wait for redemption)
- Buy OFZs with all available money (yields will fall in the future) to lock in excellent interest income
As you can see, it turns out that it is Strategy 2 that plays into our hands - but main question is to find the time when it will begin to be realized. Now it is very difficult to say something unambiguously. We have just seen, on the contrary, an increase in the Central Bank rate, which gives us reason to think about Strategy 1, in which we must behave most carefully.
For the time being, I would suggest looking more towards Strategy 1 (that is, being careful) and at the same time note that buying bonds at a price below par (2 points) is beneficial for us in both cases.
Bonds under Strategy 1
- Yield: 7.76%
- Repayment date: 12/11/2019
- Last price: 99,05
- Yield: 8.08%
- Repayment date: 05/27/2020
- Last price: 97,63
- Yield: 8.13%
- Repayment date: 04/14/2021
- Last price: 99,14
- Yield: 8.15%
- Repayment date: 08/18/2021
- Last price: 98,75
- Yield: 8.27%
- Repayment date: 24.11.2021
- Last price: 96,88
- Yield: 8.32%
- Repayment date: 12/15/2021
- Last price: 96,75
As you can see, the yield grows with the duration (=risk) or the maturity date.
To begin with, if you need to know the accumulated coupon income for the current date, you can always see it on the website of the Moscow Exchange moex.com or on the website of the Interfax agency rusbond.ru
Do not be surprised by the fact that the ACI values on the Moscow Exchange website and the ACI values on the Interfax website differ from each other. This is due to the mode of trading on the Moscow Exchange. Federal loan bonds are traded in the T+ mode, that is, with settlements postponed to the next trading day. Therefore, ACI on the website of the exchange for OFZ is always greater than the value on the website of the Interfax agency.
Important Afterword
The calculation method presented in the article is not suitable for all bonds. The number of days of the coupon period can be calculated in different bases. Recently, I came across a manual with a method for calculating bond yields and accumulated coupon income on the Moscow Exchange website. I don’t remember in which section of the exchange portal I found it, so I post it here for free download.
In the archive offered for download, in addition to the methodology, I have attached an Excel file with charting for stocks. Here is a link for download: Methodology for calculating ACI and profitability download
I would appreciate your opinions and personal experience in the field of bonds when you share them in the comments on this article. I will also be happy with questions and will try to find answers to them, or maybe they are already known to me - ask questions in the comments to the article, do not be shy, I will answer everyone.
That's all for today, my dear readers.
IMPORTANT! The changes affected only stocks, the mode of trading in futures has not changed.
The first most important innovation is that stocks can now be traded like futures contracts, with a leverage of 1/5 or more, naturally with all the ensuing consequences: rapid enrichment or instant ruin. An important feature is that now you can open positions on credit, replenishing your account within two days.
Secondly, this change disabled many trading robots, which affected the trading volumes.
The third, subjective opinion, is that now it will be more accessible and comfortable for certain structures to manipulate the market.
Now for the changes in trading terminal Quik. Each broker has its own characteristics, but usually a number of changes are required.
- Please update Quik to version 6.7.1.3 and above as the new T+2 trading mode is only available for new versions from 6.7.1.3 and above.
- Update the tools in Quik, in the menu Communication - Lists, check the boxes for the new classes that you will work with. For example: MB FR: T + A2-Shares and shares (Fig. 1).
- Update the main tables, first of all the Current Design Table. Add tools from new classes to it (Fig. 1).
Also build charts, order books, etc. That's all the changes.
IMPORTANT! First make a copy of the Quik configuration file, save it under a unique name other than info.wnd, so that you can restore it later if necessary.
Examples of displaying limits for securities and money in trade Quik terminal under the new trading mode Т+2.
Introduced the new kind limit - planned limit - Т+2.
T2 - determines the planned position or current. balances taking into account future income and deductions on already opened T+2 deals (Fig. 2).
T0 is an old indicator, it reflects the current balances of the day. funds and papers (Fig. 2).
Example 1. 10,000 shares of VTB and 10 shares of Gazprom AO were purchased from a client and there are no active bids, so the available money. funds = 10,000 rubles. (Fig. 2).
Example 2. A client in T+2 trading mode buys another 10,000 VTB shares at 0.05 rubles. in the amount of 500 rubles. and sells 10 shares of Gazprom for 120 rubles. in the amount of 1200 rubles. The client's limits will change as follows: the limit for VTB T2 securities = 20,000, the limit for Gazprom securities T2 = 0, while the available funds are 10,700 rubles. (10 0000 - 500 + 1200) - Fig. 3.
Example 3. The client placed orders: 20,000 VTB shares for sale and 10 Sberbank shares for purchase, then 20,000 VTB shares will be blocked. The cash limit will be reduced to RUB 1,198.90 due to the blocking of the amount of RUB 9,501.1. for the purchase of Sberbank (Fig. 4).
Example 4. A client, having 10,000 rubles, bought 400,000 VTB shares in the amount of 19,156 rubles. and left the position the next day. In this case, the broker enters into a REPO deal with the client for the missing amount of 9,158 rubles. (Fig. 5), for this service some percentage will be charged.
On this moment the list of securities that can be traded in T+2 mode includes about 50 liquid shares and OFZs.
With the new trading mode, all clients (by default) are provided with 1/5 leverage.
IMPORTANT! A new indicator has been introduced - the level of security. If it drops to 15% or less, then the client receives a warning: margin call. In the event that the level of security falls below 10%, there is an automatic and forced reduction - positions are closed.
All of the above is reminiscent of trading futures contracts.
This innovation caught many developers of exchange robots by surprise, despite the fact that it was announced in advance. The saying “nothing is as unexpected as the beginning of winter” remains relevant.
Perhaps one of the first trading robots adapted for the new T+2 trading mode was the SuperADX robot. It is designed for connoisseurs technical analysis, has 17 tactics and is considered one of the most advanced trading robots.
