Local government bonds: 5- and 10-year notes to be offered
The market closed 5-8bp tighter in yield terms, with the most action concentrated in the long end. RFLB 28 closed below 8% at 7.98%. MinFin announced that RUB 3bn of RFLB 18 6.2 and RUB 12bn of RFLB 23 would be offered on Wednesday. We consider that the price action was fuelled by a number of factors. First, UST tightening on the one hand and local players buying notes on the other (especially in 15-year tenors, where primary supply has been tiny in the last three months) but RFLBs did not really react when UST yields rose to 3% last week. Second, MinFin priced Eurobond issues and might trim some of the primary supply overhang in the RFLB market, but we think this was fully priced in before the placement (in our view, it is no surprise that MinFin tapped the market). Third, RUB is not weakening. If conditions do not change much, we think the auctions could be rather successful, especially if the market players increase positions for rate cuts ahead of the CBR meeting on Friday.
Maxim Korovin, Anton Nikitin
VTB Capital analyst
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