How does the Central Bank's key rate affect Federal loan bonds

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How does the Central Bank's key rate affect Federal loan bonds

The Central Bank of Russia has lowered its key interest rate to 4.5% per annum. How did the bonds react to this? The event did not come as a surprise, and their cost did not change significantly.

In my public investment account several OFZs were purchased in the portfolio. I have already written to you earlier that you should not look at the change in their cost at all. You will not be able to earn money by changing their cost. Just remember this for yourself.

Since bonds are one of the forms of raising money, a change in the key rate has an impact for each subsequent issue of securities.

By selling bonds at market value, you will not buy them cheaper. Remember the main thing: when is the key bid The Central Bank is growing, and old issues of fixed-coupon bonds are falling in price. Conversely, the value of securities increases if key rate The Central Bank is falling. It turns out guessing and certain risks.

The bonds were all purchased with the calculation of maturity at par. It turns out that their final cost for me is always equal to par + accumulated coupon yield.

If the key bid is The Central Bank grows, old bonds become cheaper, so that the current coupon yield in percentages is equivalent to fresh issues.

When and what bonds to buy

If the key bid is The Central Bank is growing, buy short bonds, which have a maturity of up to two years. Or choose securities with a variable coupon, which is formed based on the key bid. If the Central Bank's key rate falls, then pay attention to long bonds and then get a larger coupon yield.

Anyway, if an investor is planning long-term investments, there is no point in paying special attention to the rate change. After all, in the end, the episodes of growth and decline compensate for each other, and in the long-term strategy, interest payments (CD) come to the fore.

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