Bank of Russia bonds have their own unique history. They are issued after the famous default in 1998. It was then that the Central Bank decided to issue the first bonds. They were ultra short-term. After all, the maturity did not exceed only two weeks. The purpose of the issue of securities was to maintain the liquidity of commercial banks that coped with the crisis.
What is it?
Bank of Russia bonds, in essence, differ from similar securities on the stock market. That is why potential investors should understand in detail the features of this financial instrument.
As you know, the Central Bank pursues a monetary policy of the state. In some cases, it initiates the issuance of bonds that are circulated only among commercial organizations. From this it follows that they are not available for purchase by individuals.
Benefits
Why are Bank of Russia bonds needed by credit institutions? Everything is simple. If the bank has a surplus of cash, it can receive additional income by purchasing bonds of the Central Bank. The attractiveness of the tool lies in its reliability, safety and lack of risk. This is true for commercial organizations seeking to increase equity.
Investing in Bank of Russia bonds has two important consequences. Firstly, the liquidity of the banking sector is declining. Secondly, the growth of money supply is restrained.
You need to understand that securities of the Central Bank may become tax security if, after their acquisition, a commercial organization plans to obtain a loan. As a result, it is easy to conclude that the Bank of Russia bonds are an effective tool for controlling free money supply.
Despite the fact that securities first appeared on the market in 1998, until 2004 they were not widely used. The situation was changed by the flow of foreign exchange earnings that literally surged into the country. In such circumstances, Bank of Russia bonds have proven effective. Allowing to regulate free money supply, they remain in demand.
Features
Issues bonds Bank of Russia. Securities are stamped in separate batches with completely different maturities. Features vary by Credit Committee. Bonds are serviced by the Central Bank.
They issue securities avoiding the state registration procedure and drawing up a further report on the results of the Bank of Russia bond issue. This is one of the features.
Bank of Russia bonds are considered to be short-term registered securities. They are issued in the form of documents that require centralized storage. In addition, each Bank of Russia bond issue has certain rights. To confirm them, a global certificate has been developed.
I must say that Bank of Russia bonds have earned a good reputation in the market and are considered a liquid and at the same time reliable financial instrument. That is why these securities can act as collateral for interbank lending.
Another feature is that credit organizations become owners of these securities.
Short-term bonds of the Bank of Russia can circulate in the secondary market and even become collateral. They are divided into coupon and zero coupon. We will talk about these two types in more detail.
Bank of Russia coupon bonds
Their release was resumed in August 2017.The reason is that the Central Bank has set a goal to remove excess money from the banking system. The abundance of financial resources placed by credit organizations at depositary auctions led to this decision. Operations with Bank of Russia bonds were to become one of the options for medium-term investment of available funds. At the same time, a rate equal to the key one was proposed.
Release form
Bonds have a variable coupon. This means that there is no clear date for the payment of income. She will be unstable. The coupon size is determined as one 365th or 366th part of the key rate. Payments occur every three months.
The price at which coupon bonds can be purchased is never lower than the face value. He is known in advance. At the same time, at the end of the treatment period, the owner is returned an amount equal to the indicated face value. This means that Bank of Russia bonds may have low yields.
The decision on the main or additional issue is made on the basis of preliminary forecasts of excess liquidity of the money supply. The first bonds covered the volume of 149 billion rubles, thus confirming the liquidity of the financial instrument. It is not surprising that in the future the Central Bank increased the issue of securities. If we talk about the current situation, then in circulation there are many coupon bonds, the total amount of which is about 1 trillion rubles. This allows you to call securities an important tool to regulate the excess of money supply.
How to buy?
If the potential investor is even a little familiar with the stock market, he knows very well that the purchase of securities is possible in the primary or secondary market. In the case of the other lots, Bank of Russia bonds are purchased at auction. Event participants submit applications indicating the desired purchase price.
You need to understand that bank bonds for individuals in Russia are not available. These securities are intended to regulate banking activities. Accordingly, only commercial credit institutions can become their owners.
Another opportunity to acquire COBR (Bank of Russia bonds) is to apply to the secondary market. On the Moscow stock exchange it will be a section of government bonds. The principle of purchase is the same. Bidders submit bids. When a balance is reached between supply and demand, a deal is concluded, the terms of which suit both parties. It is curious that the Central Bank can buy its own bonds. Moreover, the organization has the exclusive right to apply for early repayment.
Income
To calculate the approximate profit of coupon bonds, you need to know their features. So, remember that in the primary market they are not sold for less than face value.
Therefore, the income of the owners of bonds of the Bank of Russia is formed from a coupon. But to calculate net profit, you need to subtract the size of the premium. In such a simple way, it is possible to calculate the approximate income that can be claimed by the holder of coupon bonds of the Bank of Russia. Based on this information, you can decide on the advisability of using the previously mentioned method.
Zero-coupon bonds of the Bank of Russia
Currently, this type of securities is not issued. And all the previous ones have already been paid off. However, it is worth talking about it so that potential investors have a full-fledged picture.
So, zero-coupon bonds are related to the existing monetary instruments of the Central Bank. They are on a par with deposits, loans, etc. They pursue the same goal as coupon counterparts, that is, control over the liquidity of commercial credit institutions.
A feature of zero-coupon bonds is that at the time of issue they have a zero interest rate. It would seem, for this reason, securities should become absolutely unattractive to potential investors. However, in reality everything is somewhat different.
Profit
Holders of coupon bonds of the Bank of Russia also have the opportunity to earn income. This does not stop even the lack of periodic payments. Income is generated due to the presence of a discount, that is, discounts in relation to the declared nominal price. This allows investors to profit.
In fact, this means that couponless bonds in the primary market are sold at a price below par. In the future, the owner of securities issued by the Bank of Russia can resell them or wait for the redemption and return of the nominal value that will exceed the original purchase price, and the difference between these two indicators just makes the investor’s income.
Information on the next issue of Bank of Russia bonds can be obtained via the Internet. Relevant data is published on the official website of the Central Bank. Accounting for each issue is carried out on paper and electronic media.
Circulation of bonds is possible only among credit organizations. But not all, but only those who took care in time to conclude a corresponding agreement with the Bank of Russia.