It looks like the time of “buy OFZ and don’t worry about anything” strategies is over. The Central Bank rate cut has done its job — the Russian debt curve has become flat, you can place rubles in medium-term securities at about the same interest rate as in a savings account. What should an investor do?

Place rubles? It would seem as simple as shelling pears: any broker offers to invest in ruble-denominated instruments with fixed income, for example, federal loan bonds — OFZ. However, if earlier reliability and profitability in government securities went hand in hand, now, under the pressure of the Central Bank rate cut and investor demand, profitability has melted.

This is what the Central Bank writes in its

So, the profitability of short and medium-term government securities is approximately at the level of the profitability of the money market. Additional market risk (higher duration) under the current conditions is not rewarded with an additional premium, but is “penalized” — in this section the OFZ curve is inverted. What are the practical conclusions from this?

Suppose an investor has a task — to place rubles for an indefinite period within six months. Money may unexpectedly be needed to make a large purchase or return a borrowed debt. This means that you need to find some kind of liquid placement method — the deposit is not suitable, because the interest on it will have to be lost in case of an early break. Two options remain: either short OFZs or the FXMM money market fund.

Despite the fact that, in fact, the FXMM portfolio consists of more reliable instruments than OFZs, namely US Treasury Bills, the Russian investor in recent years believes in his “home state” and often ignores the OFZ risk. It would be embarrassing for a portfolio manager to equalize an instrument rated BBB and US Treasury Bills rated AAA, but for the sake of simplicity, we will assume that for an investor the instruments are equivalent in terms of default risk. Transaction costs for both instruments are approximately equal, although an OFZ investor is faced with the need to pay a brokerage and depository commission when reinvesting the coupons received.

So what should an investor choose? OFZ-26210-PD is not suitable — the term is too short. OFZ-26214-PD and OFZ-26205-PD offer yields in the range of 5.7-5.94%. In the case of FXMM, calculating the future yield is more difficult than in the case of government bonds. The return on the money market fund is floating and is dependent on the dynamics of the return on the US Treasury Bills portfolio and the forward premium. A good estimate can be the imputed yield (USDRUB Overnight Forward Implied Yield): now at 6.73%, minus 0.49% of annual expenses — this is 6.24%.

Ok, the profitability seems to be clear: investing in FXMM looks a little more attractive. Let’s see what the market risks of investing in OFZ and FXMM are.

With FXMM, everything is very simple: no matter what happens with the rates, you can only lose money if the rates in dollars turn out to be higher than the ruble rates. In our opinion, this is a very unlikely event. You yourself can notice this from the rates of deposits in a Russian bank: ruble rates do not inspire optimism, but not zero, but dollar rates are about zero.

What will happen to investments in OFZ? Consider two simple scenarios: growth and fall in rates, for example, under the influence of the Bank of Russia. If rates go up (for example, under the influence of geopolitical events), OFZ prices will fall, while the yield of FXMM, on the contrary, will rise. With a decrease in the rate, all other things being equal, the effect will be the opposite, with the only difference that the value of FXMM, as we described above, is not threatened, and there will be no special impact on the yield of OFZ — the trajectory of rate changes is already “in prices”.

Thus, investing in OFZs for our investor is associated with a significant risk: if the Central Bank does not cut the rate as aggressively as the market thinks (and puts it in OFZ prices), then bond prices may fall and yields may rise. In this case, short-term investments in OFZs may result in losses, and the investor may not return the invested money at the moment when he unexpectedly needs it.

Based on the combination of factors, an investor should pay serious attention to FXMM. In this case, he will not have problems with the choice of securities, he will not have to reinvest coupons, and he will receive absolute flexibility — he will be able to use funds at any time without the risk of loss (even if the funds are required earlier than he originally planned). At the same time, decent profitability and maximum reliability that he will receive is what is needed for short-term investments.

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