The share of nonresidents in nominal amount of bonds (OFZ bonds) increased the share of a record level since the start of the publication of these data (1 January 2012). According to the Bank of Russia on September 1 this year it amounted to 31.6%. Nonresidents owned OFZ nominal volume of 2.032 trillion rubles, or about $35 billion.
The previous value (on August 1, 2017) equal to 1,896 trillion rubles and 30.2%. A 30% level was achieved for the first time on 1 April this year, and since then below never fell.
Thus, if to judge according to the evaluation of the national debt, which the Bank of Russia published on Thursday, the share of non-residents should be increased and at the end of September, as the volume of investments in Russian ruble debt securities on October 1, 2017 $37,429 billion.
On January 1, 2017, investments of foreigners in the OFZ of the Central Bank was estimated at $25,032 billion Thus, in January-September they bought securities worth more than $12 billion for the third quarter of this year, investments in government bonds increased by almost $6 billion.
Even more impressive is the growth in comparison with January 1, 2016 – at that time foreigners had ruble securities total $14,735 billion.
"The increase in foreign liabilities of public administration at 12.5 billion US dollars due mainly to the acquisition by non-residents of sovereign debt instruments in Russian roubles in the secondary market," says CB in comments to the assessment of the external debt.
Debt of other sectors increased by $12.9 billion, or 3.8%, which was determined largely by the receipt of credit resources from foreign associated entities. Continued reduction of external debt of the banking sector, which amounted in January-September 2017 $12 billion.
"The sectoral structure of external debt of the Russian Federation as of October 1, 2017, the share of debt of state administration bodies amounted to 9.6%, the share of liabilities of the banking sector at 20.0%, other sectors – 66,3%," according to the Central Bank.
Foreigners continue to invest in the Russian OFZ bonds because the rates on them are significantly higher than rates in foreign debt securities. This ensures the inflow of currency to Russia, and supports the stability of the ruble.
Sergei Kozlovsky, head of the analytical Department of Grand Capital, believes that in the short term, the ruble will be "sustained through the demand for OFZ players in the carry trade".
Sberbank CIB analysts also note that Russian market is leading among emerging markets in investment inflows for six consecutive weeks. According to EPFR Global, for the week ended 4 October, the investment in Russian assets has increased by $186 million (0.35% of assets under management), and in emerging markets as a whole — $624,6 million (0,06%).
The main increase in investment has secured funds oriented to Russia, investing $162 million, or 1.5% of funds under management. Dynamics of the majority of other investors, was also positive: growth was measured in double figures.
Russia was the clear leader among the countries BRIXT (Brazil, Russia, India, China, South Africa and Turkey) in relative terms, the second place was India, with inflows of 0.11% of assets under management ($148 million). Of this group, only Turkey recorded a net outflow of funds in the amount of $0.3 million.
Analysts warn that the carry trade can turn back for Russia a problem if foreigners decide to massively withdraw from the domestic market.
One of the factors that leads to this is the reduction of the spread between the key rate in the Russian Federation and rates of developed countries, particularly the United States, notes the analyst of "ALOR broker" Kirill Yakovenko. Central Bank consistently reduces the rate, trying not to clamp down on the money supply, which is already shrinking because of the reviews of the licences, and the fed, on the contrary, proclaimed the policy of a strong dollar and your bet will increase.
"Thus, the space for earnings on operations carry trade is shrinking, and soon Carrie traders can start to withdraw funds from Russian assets and convert them into currency, which may lead to an increase in the dollar," he says.
Additional pressure on the national currency might occur when the foreign investors will begin to actively sell off Russian assets, agrees Oleg Yakushev, expert IK "Zerich capital Management".
"The reason for this may be the extension of American sanctions against our country. In this case, the purchase of Russian debt securities will become less attractive financial operation," — says the analyst.
He stressed that, in General, the dynamics of the ruble in the fourth quarter will be affected by a number of factors, most of which are not amenable to control by the Russian authorities.
While the Central Bank of the Russian Federation and the Ministry of Finance can affect the behavior of the ruble by selling foreign currency reserves in the case if the demand for currency will rise sharply. "However, we believe the highly unlikely scenario in which the demand for currency will rise to an excessive level," summarizes Yakushev.
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