Bank of Russia bond operations

Main purpose of the instrument

Bond placement by central banks is a common practice in international monetary policy. Such transactions are most widely used in emerging financial markets. Central banks of South Korea, Israel, Brazil, Chile and South Africa, among others, issue their own bonds.

Central bank bonds as an instrument for regulating bank liquidity used to absorb sizeable and sustainable surpluses for a relatively longer term (from several months to one year).

Central bank bonds are quite attractive to credit institutions. First, their holders earn a guaranteed income. Second, if credit institutions require additional liquidity before the bonds mature, they may use the bonds as collateral in money market operations and/or to raise funding from the central bank. Furthermore, credit institutions may sell them either on the secondary market or to the central bank, if possible.

The Bank of Russia may hold auctions to offer its bonds (Bank of Russia bonds, or OBRs) to unload its main operations, weekly deposit auctions, that is, if the liquidity surplus turns out to be sizeable and long-term.

The Bank of Russia is entitled to issue its own bonds to implement monetary policy under Article 44 of Federal Law No. 86-FZ, dated 10 July 2002, ‘On the Central Bank of the Russian Federation (Bank of Russia)’. OBRs are issued in compliance with Article 27.5-1 of Federal Law No. 39-FZ, dated 22 April 1996, ‘On the Securities Market’.

OBR operation participants

In line with the purpose of Bank of Russia bonds as a monetary policy instrument, OBRs are exclusively offered to and circulated among Russian credit institutions.

OBR characteristics

OBRs are coupon bonds maturing in 3, 6 or 12 months with a par value of 1,000 rubles (one thousand rubles). OBRs are included in the Bank of Russia Lombard List. OBRs are sold at par value or at a higher price and redeemed at par value. The coupon period is set at three months. OBR yield is floating with the Bank of Russia key rate. The coupon yield is accrued for each day of the coupon period at the key rate effective as of that day.

The accrued coupon yield is calculated daily using the following formula:

AIi is the coupon yield accrued as of the i date in rubles and kopecks;

N is the par value of the bond in rubles and kopecks;

t is the calendar day counter;

Ti is the difference between the i date and the beginning of the coupon period in calendar days (including weekends and holidays);

Dt is the date t days apart from the beginning of the coupon period;

rDt is the Bank of Russia key rate effective as of the Dt dated, % p.a.;

baseDt is the number of days in the year the Dt falls on (365 or 366).

The Bank of Russia publishes press releases about its decisions on OBR placement and information notices about the completion of OBR placement on its website.

Information about OBR redemption (the par value and the coupon yield paid) and OBRs in circulation is published in the Statistics / Banking Sector Liquidity and Monetary Policy Instruments section on the Bank of Russia website.

OBR auctions

Placement and additional placement of OBRs is carried out through auctions. OBR auctions are held at the public joint-stock company Moscow Exchange MICEX-RTS (the Moscow Exchange) (in compliance with the Rules for Trading at the Stock and Deposit Market of the Moscow Exchange published on the website of the Moscow Exchange) in the Placement: Auction trading mode with the B01 settlement code.

The date of the auction and further information are announced no later than one day before the auction on the Bank of Russia website in the What’s New section and communicated to market participants through the respective information notice on the website of the Moscow Exchange. Information on past auctions is available in the Statistics / Banking Sector Liquidity and Monetary Policy Instruments section.

OBRs are usually placed (additionally placed) at a variable price auction with a set offered amount, in the American manner (bids are closed at indicated prices).

Only competitive bids with prices indicated as a percentage of the par value are accepted to the auction. Non-competitive bids (without price indication) are not accepted. The minimum acceptable bid price equals 100% of the par value.

After the bidding is completed, the Bank of Russia determines the cut-off price for the set amount to be placed or recognises the auction as invalid. If there is only one bidder, the auction is recognised as invalid.

A valid auction results in the closure of all bids equal to or higher than the cut-off price. If the total demand indicated in bids with prices equal to the cut-off price exceeds the amount of bonds to be placed, such bids are closed proportionally to the indicated amounts.

Results of OBR auctions are published on the Bank of Russia website in the What’s New section. Past auction results are available in the Statistics / Banking Sector Liquidity and Monetary Policy Instruments section.

OBR secondary market

OBRs are sold on the secondary market through trading on the Moscow Exchange in accordance with the Rules for Trading at the Stock and Deposit Market of the Moscow Exchange published on the Moscow Exchange website. The Bank of Russia does not limit the secondary circulation of OBRs at the OTC market. The Bank of Russia may buy and sell OBRs on the secondary market.

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