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Rates: XCCY curve steepens, basis narrows


However, XCCY rates aggressively moved in response to higher UST and swaps. The XCCY curve was paid and steepened further (in line with our expectations). 2-year XCCY was 6.28% and 5-year closed at 6.62%, around the maximum in 2013. In our view, the steeper XCCY curve better reflects our expectations that the CBR is unlikely to deviate from the Fed on a five-year horizon like other central banks that need to tighten their policies at the moment. The IRS/XCCY basis is not far from -50bp and the curve is getting steeper as well, with the difference between the 2- and 5-year basis spreads at only 10bp. We expect this to be flat if the party in USTs continues.

The overnight FX swap closed at the CBR offer and banks got around RUB 33bn via this facility. This is probably technically related to low correspondent accounts at the end of the RRR regulation period. Front-end NDFs reacted with a 6bp move to 6.44% in 1-3-month tenors. In our view, this level looks OK to receive because there is a chance that the CBR will announce MTRO auctions and, probably, cut the base rates next time as inflation is to slow down in September (the impact from the previous auction has already faded).

Maxim Korovin, Anton Nikitin
VTB Capital analyst


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