Bonds

A SUPPLEMENT TO EUROMONEY

Both rouble and dollar-denominated fixed-income instruments have been enjoying increasing attention from Russian and foreign investors. The main fixed-income instruments and markets and the practical elements are outlined below.

Rouble bonds

GKOs are short-term zero-coupon Russian government Treasury bills. OFZs are coupon-bearing Federal Loan Bonds. Both are issued by the Russian finance ministry and are traded on the Moscow Inter Bank Currency Exchange (MICEX) as well as on five other currency exchanges connected with the MICEX and located in large regional cities. GKOs were introduced in May 1993 as non-inflationary instruments for financing the budget deficit. OFZs were introduced in June 1995 to complement the GKO market as an instrument with medium and long-term tenors.

The main characteristics of the GKO/OFZ markets are summarised in the table below.

Historically GKO yields have changed dramatically (from 350%-400% to 22%-31% p/a). The main reasons for such a shift were the introduction of the rouble-dollar corridor, the strict target-driven policy of the Central Bank of Russia (CBR) aimed at reducing the cost of borrowing, the reduction of perceived political risk with President Yeltsin's re-election, and the admittance of non-residents to this market.