Yesterday, the RFLB market was quite stable. RFLB 19 7.50 (YTM 7.17%) yield moved up 5-6bp and RFLB 23 7.0 (YTM 7.68%) picked up 3bp in yield. At the same time, USTs remained under pressure with 10-year UST touching 3.0%. Does it mean that the translation of higher UST yields into the local yields has ended? In our view, this conclusion seems to be premature and it is likely that the RFLB market held well only in conjunction with a stable RUB. Furthermore, recent UST dynamics suggest that the better the US economic data is, the more pressure appears in the 2-5-year USTs, implying that tighter expectations are gradually pushed backward in time. As such, we expect some additional pressure to appear in the belly if foreign investors trim their holdings in response to the bear-flattening in the UST curve.
Meanwhile, there were numerous comments from the Ministry of Finance about the domestic borrowing programme yesterday. Some said that its volume would be cut and others that there would be no revision. In our view, these comments are ‘white noise’ because the headline programme (if it is left unchanged at RUB 450bn on a net basis) is certainly unrealistic and, thus, not a proxy for primary market supply. Moreover, the market has already shown that MinFin has little control over the programme and its success is defined by market conditions (the only budget item under MinFin’s control is the transfer to the Reserve Fund). YTD net placement is around RUB 60bn and we think MinFin is unlikely to borrow more than RUB 150-200bn for the whole year.