NRBank's expertise in GKOs and GKO description

Since their first issuance over three years ago, GKOs have become extremely popular
with both domestic and foreign investors. Yields have been extraordinary.

GKOs (Gosudarstvennye Kratkosrochnye Obligatsyi) are Russian Treasury bills denominated in roubles. The Ministry of Finance first issued them on 18 May 1993, to help finance the fiscal deficit. The first major auction, with a dollar equivalent face value of $840 million, took place in June 1994 - previous issues had been $20-$100 million. Daily turnover on the secondary market jumped from under ten million dollars to $25-$100 million. It now stands at $400-$800 million.

Like US Treasury bills, GKOs are zero coupon instruments of less than one year maturity, sold at a discount and redeemed at par. GKOs have been issued with original maturities ranging from 91 to 364 days. However, as is typical for countries with high inflation and precarious public finances, shorter maturities predominate. There has recently been a trend towards longer (nine month as opposed to six month) maturity issues. Some 43 per cent of presently outstanding GKOs mature within three months.

The total capitalisation of the GKO market is now the equivalent of about $40 billion of par value and about $31 billion of market.


GKO yields are typically quoted ot an annual simple interest rate, using the following formula:

GKO yields published prior to 1 September 1995 were grossed up to equivalent pre-tax levels using a 35 per cent rate.

Annualised dollar returns on three month GKOs have never fallen below 20 per cent and have typically been much higher, at 35-45 per cent levels. Among heavily traded debt, GKOs were the world's top performers in 1995.

The chart shows medium weighted monthly returns on GKO markets across all maturities for the period of January-July 1996. The returns shown are simple and not compounded.

The graph represents the percentage of the average annual market growth rate during a one month period, ie, if investments were made at the beginning of each month (starting from January 1996 to July 1996) and repatriated at the end of the same month.