The stock market of the Moscow Exchange is called the Main Market Sector. It includes:
- Stock and share market, where Russian and foreign stocks are traded, as well as depositary receipts, investment shares of mutual funds, ISU, ETF.
- Bond market, where OFZ, regional and municipal bonds, Russian corporate (including exchange-traded) bonds denominated in rubles and foreign currency, corporate Eurobonds and sovereign Eurobonds of the Russian Federation.
Stock Trading Modes
The main mode of trading on the market for shares and shares is called "DOM T+2". In this mode, trades are conducted according to the technology with a central counterparty - partial collateral - deferred execution. Cash Settlements with the seller for purchased securities and their delivery to the buyer are carried out on the second day from the date of the transaction. This is called the "settlement cycle - T + 2". Main trading mode - Т+
Bond Trading Modes
The bonds are traded in three main modes: "DOM T0", "DOM T+1", "DOM T+2".
- "Glass T0" - day-to-day settlements Regional and municipal bonds, as well as corporate bonds, Eurobonds of the Ministry of Finance, Eurobonds (denominated in rubles) are traded in the main trading mode "Glass T0". Sellers and buyers are obliged to ensure the execution of the transaction by 100%. The seller's account must contain bonds, and the buyer's account must contain money. Settlements in the Main Trading Mode ("T0 order book") take place on the day of the transaction. The settlement cycle is called T+0.
- "Glass T+1" - settlements for the next day OFZ - Federal Loan Bonds - are traded in the main trading mode "Glass T+1" using the technology with a central counterparty - partial collateral - and deferred execution. Main trading mode - Т+. Settlements and delivery are carried out on the next day from the moment the transaction is concluded in the settlement cycle - Т+1.
- "Glass T+2" - settlements in two days Bonds denominated in US dollars are traded in "Glass T+2". Mutual settlements between sellers and buyers are carried out on the second day after the conclusion of the transaction in the T+2 settlement cycle. Main trading mode - Т+.
D-Bonds is a trading mode in which defaulted bonds are traded, i.e. bonds, the issuer of which did not fulfill (partially did not fulfill) the next obligations to pay coupon income or face value, or part of the face value.
What bonds fall into D-bonds?
If a bond is included in the D-bond list, then the issuer of these bonds is no longer able to service its debt in the usual mode and is either in a state where it is threatened with bankruptcy, or is already in bankruptcy proceedings (but not yet recognized as such).
The criterion for getting into D-bonds is
- failure to fulfill obligations to pay income on a bond (coupon), as well as partial failure to fulfill this obligation;
- non-payment of funds on account of repayment or partial repayment (amortization payment), as well as parts of such payments;
- refusal to redeem bonds, if such was provided for by the decision on the issue;
- delay above the indicated payments by more than 10 days.
Delay for a smaller number of days, according to the rules of the Moscow Exchange, is a technical default, and in such cases there are no serious sanctions from the Exchange.
But the most important thing to note is that the Moscow Exchange does not formulate the criteria unambiguously and reserves the right to make a decision, depending on the specific situation, taking into account all important factors. TO an important factor may include, for example, the importance of the issuer, the volume of securities traded, the number of bondholders, media reports, reports in the disclosure of the issuer's information, etc.
The exchange can make the following types of decisions:
Exclude securities from the list and stop trading in these securities;
leave papers on the list;
leave the securities in the list, but limit the available trading modes - this means the inclusion of securities in the list of D-bonds.
What are the features of the D-bond regime?
As mentioned above, the d-bond regime limits some trading opportunities. Although the main functionality works. Bidding takes place by (as usual) a counter auction.
Only:
- market orders (without specifying the price);
- limit orders (with price indication).
All other bids such as iceberg bids, closing period auction bids are rejected.
There are also no opening and closing auctions themselves.
There is also a mode of negotiated transactions (RPS d-bonds), which allows you to send orders to a specific trading participant and wait for a counter order from him on the same conditions to complete the transaction.
conclusions
Issuers of bonds traded in this mode have found themselves in a difficult financial situation. Sometimes companies recover their creditworthiness after a default, sometimes they don't and go out of business. The recovery of activity does not always go without loss for investors.
But if you have remained or become the owner of defaulted bonds, the following is safe to say. The procedures for both financial recovery and liquidation are very lengthy. It may take up to five years before the creditor receives payments from the liquidation of the company. Also with financial recovery, which also does not necessarily succeed.
Thus, the D-Bond regime may be the last tool to return at least part of the investment - to sell securities to those who are ready to play long and with huge risk.
Successful investment.
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 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 are still corporate bonds, the yield on which may be higher. 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 investment instrument in the 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 (short-range) as they will fall less (less loss from a change in the 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 the main question is to find the time when it will begin to be implemented. 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.
Etc., but this excursion would be incomplete if I didn’t mention another extremely popular and, most importantly, reliable asset for exchange trading, namely -. We will talk about them in this article.
As opposed to classical exchange instruments, I would like to cite binary options as an example, in which a trader is able to receive a fixed profit of up to 90% of the investment amount with a contract expiration period of 1 minute or more. With proper money management and systematic trading, binary options can be a great addition to classic types of trading and investment.
How to get started in the market binary options? One of the simple and profitable options is a company in which the minimum trading deposit is $10, and minimum size trading position$1, which will be interesting for those who only want to try this type of trading, or start trading with minimal investment.
According to the already established tradition, the features of OFZ trading will begin with determining the essence of the asset.
Federal loan bonds are securities issued by the Ministry of Finance Russian Federation. Issued in the form of registered documents, subject to mandatory centralized storage.
OFZ trading on the MICEX and the terms of their circulation can be both medium and long-term. And the owners can be both individuals and legal entities(including foreign ones).
As I said, OFZs are distinguished by centralized storage, and the general agent for their exchange and storage is central bank Russia.
Types of OFZ on MICEX
Federal loan bonds listed on the Moscow Stock Exchange can be divided into several large groups:
- OFZ with a variable (unknown) coupon– holders of such bonds are entitled to receive income on them for certain periods. Often they come two or four times a year. At the same time, the yields of bonds and the size of their rates are formed under the influence of many factors and are determined shortly before the onset of the payment period.
The nominal value of such bonds is 1,000 rubles, and the circulation period varies from one to five years.
- OFZ with constant coupon income- the size of such coupons is determined directly by the Ministry of Finance, and the yield of this type of OFZ is not affected in any way by the yield of short-term government bonds (unlike the previous type).
The nominal value is 1000 rubles, the frequency of payments is 1 time per year.
- OFZ with fixed coupon income- not to be confused with the previous type, because here the yield on the bonds varies depending on the time at which the income is paid.
The frequency of payments is 4 times a year. The maturity period is four years.
- OFZ with debt amortization- the "youngest" type of bonds, which is only gaining popularity. Bond yields are paid in installments at different time periods set in advance
Term of circulation - from 1 year to 30 (!) years. Denomination - 1000 rubles.
Benefits of investing in OFZ
The main advantage of working with federal loan bonds is their high reliability, because the issuer here is not just anyone, but the state itself. Also among positive sides OFZ trading can be distinguished:
- A fairly decent percentage of profitability, significantly higher than that which can be obtained with a deposit.
- High rate of income in rubles.
- The ability to deposit and withdraw money throughout the working day.
OFZ quotes on MICEX
Quotes of federal loan bonds, their yield schedule, current prices and other important things for traders and investors can be found both on the official website of the Moscow Exchange, where the OFZ is devoted to a whole section, and on any other financial resource. But, of course, only the exchange and your trading broker will provide the most relevant and timely information.
This is what the yield chart looks like on the website:
Here you can also find the value of the estimated yield of various bonds, indicating their most important indicators.
Basically, that's all I wanted to tell you. If anything in the process of trading federal loan bonds or the conditions on which it takes place remains incomprehensible to you - leave comments, and together we will sort out all the unclear points. In the meantime, that's all, until we meet again.
Sincerely, Nikita Mikhailov
