The government securities is the oldest and the most developed sector of the Kazakhstani financial market. It dates back to May of 1994, when the T-bills was fist issued (3 month T-bills). Government securities are the instruments which the government and the National Bank use to cover the budget deficit and to "sterilise" over KZT 25 bln (US $327 mln). The monetary flow is controlled by the Ministry of Finance and the government of the republic.

The year 1997 witnessed considerable growth in issued volumes of government T-bills accompanied by sharply decreasing yields. In the early days of T-bills market development (April-May 1994) the yields at the primary auctions were reaching 200%. At present they are to 16-18% at an inflation rate of 7-8%. Weekly placed volumes are now mounting to US $17-19 mln.

At the same time, the share of medium-term T-bills (6 month, 12 month, 2 years) increases with the development of the market. Over the first year (1994), 3 month T-bills accounted for 100% of issued volumes. In 1995 the majority of issued and placed securities were the National Bank Notes circulating in the volume of US $206.9 mln and making over 54.6% of total placement. T-bills with 3 months maturity accounted for 43.7% or US $147.8 mln, and 6 month T-bills placed volume totalled US $13.9 mln. The situation has gradually changed during the last three years and at present the government is working on the decrease of volume of short-term internal borrowings, with a perspective of giving up 3 month T-bills in the long run. While at the beginning of 1997, 12 month T-bills hardly accounted for one fifth of the placed volumes, by the end of the year their share had sharply grown. Also in 1997 the market witnessed considerable rise of the National Bank's activity in the securities sector. It has worked out and successfully implemented the strategy of sterilising enormous monetary amounts by sensitively reacting to the slightest demand fluctuations. To the date, NB notes are the most liquid and popular instruments on the market, weekly placed volumes reaching US $14-16 mln. at a yield currently fluctuating between 15.9% and 16.5%.

As at the end of 1997, the government securities and National Bank notes market looked as follows:

Security: Placed Volume Placed Volume Placed Volume

1995(US$ mln) 1996(US$ mln) 1997(US$ mln)

3 month T-bills 147.8 318.3 406.9

6 month T-bills 13.9 120.2 219.6

12 month T-bills n/a 11.8 76.2

2 years T-bills n/a n/a 11.5

NB notes 206.9 555.7 1,025

Total volume of T-bills and Savings bonds placement in 1996 totalled US $453.2 mln, by the end of 1997 it reached US $715.6 mln. In 1997, the National Bank of Kazakhstan placed notes for the total volume of US $1 bln, up 107% from 1996 (US $556 mln). As of January 1998, the volume of T-bills in circulation totalled US $311 mln, National Bank notes - US $91.3 mln.

The end of 1997 and beginning of 1998 witnessed considerable rise in yields, that resulted mainly from an unstable situation on the world financial markets and scarcity of free capital, as many investors preferred to hold back from operations in the emerging markets. Gradually, the complications of the crisis were overcome and presently, the government is stabilising yields of its T-bills on a level, that will be most advantageous for both the budget and traders.