Moscow resumes trading of government bonds, “Russian version” of quantitative easing is underway

Russia resumed trading on federal government bonds (OFZ) on March 21, almost a month after the Moscow Stock Exchange was closed on February 25 following the Ukrainian invasion.

The Central Bank of Russia said on March 18 that a public auction of all OFZ issues would be held from 10 am to 11 am Moscow time. Press release.. From 1 pm to 5 pm, trading sessions were scheduled to run in normal mode. However, short cells were banned.

During pre-market trading on March 21, the price of some ruble-denominated OFZ bonds plummeted by one-third of its value. Reuters report. However, the central bank’s OFZ bond buying activity prevented the central bank from falling further. In pre-market trading, the country’s benchmark 10-year bond yield rose to a record 19.74%, which settled to about 13.9% during key trading sessions.

“To secure a balanced liquidity position in the securities market and prevent excessive volatility, the Central Bank of Russia will purchase federal government bonds at the amount needed to limit the risk of financial stability. , Will make these purchases until the prices of financial products are fully adapted to the new terms. ” news release..

This essentially means that if prices are too low, the Central Bank of Russia will wait to buy government bonds to prevent the market from experiencing a catastrophic decline. To neutralize the impact of such bond purchases on monetary policy, the Central Bank of Russia will “subsequently sell the entire portfolio of these bonds.” Banks did not specify how much they were willing to pay to buy government bonds.

“This is the Russian version of Quantitative Easing (QE), which can maintain liquidity within the system and reduce government borrowing costs,” said Dmitry Polevoy, an analyst at LokoInvest FCM. I am. Moscow Times..

Non-residents held 19.1% of OFZ bonds as of early February 2022. According to the Moscow Stock Exchange, it is not permitted to sell bonds between March 21st and April 1st. These investors can only trade repo (also known as “repo”) and derivative transactions.

When trading on the stock market resumes, investors can close their short positions by buying securities. However, you cannot sell previously purchased securities.

The Central Bank of Russia has not yet declared when it can resume trading in commodities such as stocks. Moscow had previously proposed banning foreigners from selling Russian stock once the deal began. The government had previously allocated up to 1 trillion rubles ($ 10 billion) to buy Russian stocks when stock trading resumed to counter the massive sellouts in the market.

Investment in the stock market by Russian citizens has increased in recent years due to the relaxation of government rules, mobile brokers, and other incentives. However, many of them had to make significant losses in the large-scale sale that took place shortly before the invasion of Ukraine.

Naveen Athrappully


Naveen Athrappully is a news reporter on business and global events in The Epoch Times.