Yesterday, the cost of FX swap in the market climbed 9bp to 6.00%, while the overnight repo rate in MOEX also increased: it was up 11bp to 6.11%. Meanwhile, the CBR has offered RUB 400bn at the overnight repo auction, but banks secured only RUB 304.4bn at an average rate of 5.54%, up RUB 115.9bn from Tuesday. However, on balance the volume of outstanding repo with the CBR declined RUB 225bn yesterday on the back of subdued demand at the one-week repo auction on Tuesday. Also, continued CBR interventions remain a substantial drag on banking liquidity: in August, RUB 195bn was sterilised that way, while in July the figure was RUB 153bn. In addition, budget expenditures have not been spectacular so far in September, especially compared with the magnitude of the CBR’s cut in repo volumes. We also noted a 5-10bp widening on the cross-currency curve in an almost parallel upward shift: in particular, the 5-year XCCY swap rate closed at 6.60% (+9bp). The IRS curve moved higher as well, fuelling some steepening. Thus, 1Y IRS remained almost unchanged at 6.75%, while the 5Y rate inched up 3bp to 7.20%. The sticky performance of the front end IRS rates can be explained by the further downward move of 3M MosPrime (6.79%, -3bp), although FRAs did not react yesterday to that move. Cross-currency rates were most likely driven higher by the price action in USTs.
However, we do not rule that some investors were also closing short positions in rouble rates on the back of the news that the August CPI had printed at 6.5%, higher than anticipated. As a result of cross-currency widening, the basis has widened as well, with the 5Y basis swap closed at -65bp (+1bp), while 7Y ended at -64bp (+6bp). Overall, we think that upward moves in cross-currency rates will fuel some wrong-way swap action amidst Russian corporates. However, we think that corporates will initially try the Eurobond market.