The currency market responded a bit too jumpily to Russia’s investment rating. With trading at record levels, currency quotes proved extremely volatile. By Monday, the dollar exchange rate had fallen to 30.60 rubles to the dollar when the Central Bank stepped in. In the second half of the week, the “bulls” sprung to life. As the dollar rose on world currency markets, speculators bought up hard currency. The Central Bank was again forced to intervene, this time by buying up rubles. On Wednesday the market calmed down and rates stayed at 30.12 rubles to the dollar. “As tax payments and GKO-OFZ auctions approach, we will likely see the regular weakening of the dollar,” believes Ruslan Tongiev, the Director of the Dealing Division at Petrokommerts Bank.
The growth demonstrated by federal ruble bonds in the first days after Russia received its rating slowed somewhat in the second half of week. Investors also became less active, and average trading ranged from 300-400 million rubles. Demand remained mostly focused on medium- and long-term bonds. Rates on GKO and short-term OFZ bonds reached around 6% p.a.,  while long-term federal bonds ranged from 7.8 to 8.3% p.a. According to Mikhail Avtukhov, Director of the State and Corporate Bonds Operations Division at Guta Bank, this week the improved credit rating will retreat into the background and the market will be supported by a stronger ruble and the large amount of free rubles.
The corporate bond segment saw a rally last week. If in the beginning it mostly benefited top-tier bonds, by the end second- and third-tier bonds also began to grow. The price index for the market rose by 40 base points over the week. The big event on the sub-federal bond market this week was Moscow City’s placement of 33^rd series bonds. Though the issue totaled 4 billion rubles, demand reached 7.4 billion. “The auction’s results had an ambivalent effect on the market, as yields at the cut-off price were 9.8%, which put a premium on the issuer’s existing yield curve,” explained Anastasia Shamina, an analyst at Zenit Bank. “This meant that the rally in Moscow bonds changed last week to minor profit fixation.”
Eurobonds started the week off with rising prices, and as a result Russia’s foreign debt ended up with a yield curve resembling Mexico’s. “Russia’s Eurobonds ended up slightly overvalued, which led to consolidation and then to a downward correction,” notes Dmitri Dudkin, a debt analyst at NIKoil Financial Corporation. “As a consequence, the spread between Russian and American treasury bonds shrank and the correlation between them increased.”
Though the euphoria on the stock market came to an end, on Tuesday the RTS index set another historic record of 642 points. The leaders last week were oil sector bonds which declined noticeably in the correction. At the same time stocks outside the oil industry continued to grow. RAO EES and Rostelkom ended up ahead, growing by 6.9% and 5.9% respectively. EES’ growth, according to Artem Dziura, Director of the Securities Market Operations Division at Orgres Bank, was the result of a new interpretation of German Gref’s statement that cash will be permitted at the upcoming auction of EES generating companies. The company’s board of directors will discuss this issue on October 31. “The LUKoil report released on Thursday according to the International Accounting Standard for the first half of this year completely coincided with market expectations. Nonetheless, its stock became a market outsider as a result of active profit fixation,” reflected Yuri Makeyev, an analyst at IT Invest.

The Financier’s Date Book

October 21 The Pipe Metal Product Company (Trubnaya Metallurgicheskaya Kompania) places 2 billion rubles in bonds.
October 21 MMK places 300 million dollars in Eurobonds.
October 31 RAO EES Board of Directors meets
October Syavinvest releases consolidated report for 2002 according to international standards