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. Last Updated: 07/27/2016

Debt Market Bullish After Vote

The Russian debt market put in a bullish performance Friday, reflecting optimism after President Boris Yeltsin's election victory, while the equities market retreated slightly after solid gains earlier in the week.


The secondary bond market, closed Thursday because of a treasury-bill auction, reacted to Wednesday's elections with gains of as much as 10 points on some issues, traders said.


"There was very strong growth in the secondary market for both T-bills and federal loan bonds Friday," said Alexei Degtyarev, a bond trader with the Rinaco-Plus brokerage. He said the market seemed "oriented toward growth" for the short term.


Average annualized yields on all issues fell to 76.4 percent from 92 percent in active trading Friday.


But some traders warned that the rising market in T-bills, whose yields have been sliding after peaking at more than 200 percent last month, could be in for a serious downturn over the next few months.


With increased Central Bank reserve requirements for commercial banks and some investors disappointed by lower yields, there could be an "outflow of money" from the market, said one trader who did not wish to be identified.


On the stock front, Friday was "an extraordinarily boring day" with thin trading as market eased from its post-election rally Thursday, said Anton Kudryashov, head of equity trading at the Renaissance Capital investment house.


The MT index of 50 leading shares lost 3.85 percent in dollar terms Friday, closing at 145.16, but posted a gain of 7.61 percent for the week.


The ruble-adjusted index shed 3.79 percent Friday, to close at 337.69, but was up 8.25 percent on the previous week.


Two of the top Russian blue chips, LUKoil and Mosenergo, declined by 6.9 percent and 4 percent, respectively, during the week. But gainers outpaced losers overall on the MT index, with 25 of the index's stocks posting gains, 13 declining and 12 unchanged.


Traders said they expected the market to pick up next week when U.S. investors return from the extended Independence Day holiday weekend.


But some warned the lull could persist because of the summer vacation season and a cautious approach by players still wary of the problems in Russia's economy despite Yeltsin's solid victory.


Political factors will continue to loom large as reformers and more conservative elements in the Yeltsin camp scramble for positions in the new government to be appointed later this month.


"The market will watch closely who is in the new cabinet and to what extent it is committed to reform," Kudryashov said.