Factors Which Influence Russian Bond Yields in the Primary Market

Last few years were extremely rich in events. This remarkably influenced Russian financial system and particularly the primarily bond market. As debt financing of companies and government operations comes to be an extremely important element of a well-functioning economy, the bonds primary market research is by no means going to lose its importance. Factors which influence the secondary market bond yields have been in the focus of economists for a few decades now. Nevertheless, very little scientific coverage was received by the primary bond market. Especially so in Russia, where the majority of related researches were based on replicating the models from foreign articles and checking them on the Russian data – all this done without taking into account specific traits and unique features of Russian primary bond market. For example, absolutely no author so far has explored the relation between the Russian primary market bond yields and the year of bond issue, the average time between coupon payments and the type of issuer’s business entity. At the same time a number of other factors like underwriter’s activity in the market, Central Bank’s rate and USDRUB exchange rate have been researched very superficially. The present paper was motivated by the idea of closing this gap and coming up with a model which among other popular variables will also incorporate the previously unexplored parameters mentioned above. The regression analysis indicated a high statistical significance of all new factors. According to our estimates, they are able to explain up to 50% of variation in primary market bond yields. This makes it possible to expand the existing Russian primary market bond yield models and to significantly increase their predictive power. This would be of a great theoretical and practical importance for all the market participants including issuers, investors and regulators.