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RUB continued underperforming EM FX


Yesterday, RUB weakened 0.6% against USD (32.96) and 0.4% vs. BASKET (38.15). In the morning, RUB opened on a stronger footing thanks to the quite decent selling flow from exporters. However, as soon as supply abated RUB started slipping, while the rest of the EM FX spectrum traded flat or a little stronger yesterday. In the second half of the session, RUB’s depreciation intensified as we think some market participants were covering shorts in USDRUB and BASKET. Thus, it took just a couple of hours for BASKET to climb from 38.05 to 38.23 in a rather sharp move. The same applies to USDRUB, which surged from 32.85 to 33.03. Overall, our estimates show that RUB trades 1.0-1.5% weaker relative to the EM FX index. Consequently, RUB’s outperformance since May has almost faded out as well. Yesterday, RUB traded more in line with NOK, which lost 0.7% to USD. At the same time, the current level of oil prices (Brent closed near 112 USD/bbl yesterday) is rather comfortable for RUB from the perspective of the current account. Nevertheless, we think RUB would regain its stronger footing in December, as investors might start preparing for the usual seasonal rally in 1Q14.

Money market: was repo limit hit? Yesterday, money market rates remained elevated. In particular, the cost of the overnight FX swap went over 6.50% and hovered near the 6.55-6.60% level for most of the day, then slipped to 6.45% at the end. Meanwhile, the overnight repo rate in MOEX moved up 5bp to 6.22%. The reason behind the stress in the money market is quite clear: yesterday was the MET payment day. However, interestingly the CBR increased the offering limit at the overnight repo auction to RUB 460bn, but banks managed to take only RUB 279bn at an average rate of 5.57%. Therefore, the total volume of outstanding repo increased RUB 70bn to RUB 2,500bn yesterday, which looks like the limit for the banking system now. The previous top was marked at RUB 2,573bn at the end of September. Consequently, banks secured a substantial amount in the FX swap window with the CBR (RUB 167bn). We note that there is one more tax payment before the end of the month, corporate profit tax on 28 November. The NDF rate remained elevated as well; in particular, 3M NDF settled at 6.49% yesterday. We are still happy to hold a receiving position in the 3M NDF opened last week at 6.45%, as overnight rates are likely to decline at the beginning of December. Meanwhile, CCS rates moved up 3bp in a largely parallel shift yesterday. IRS rates have also inched higher, but the basis tightened slightly. In particular, the 5-year basis narrowed 4bp to -58bp, while the 2-year basis closed at -51bp. In the meantime, 3M MosPrime inched up 1bp to 6.89%, while mid-term FRAs climbed up 3-4bp, with 3x6 FRA closing at 6.78%.

Local sovereign debt: weaker and steeper. Yesterday, investors were selling OFZs with international and local accounts being active on the offering side. Thus, we noted RFLB 28 (YTM 7.99%) lost 35bp, while RFLB 27 (YTM 7.89%) slipped 50bp, price-wise. On the belly of the curve, bonds moved down 20-40bp in price terms. Specifically, RFLB 19 6.70 (YTM 7.25%) lost 35bp in price. That issue offers the best roll-down opportunities at the moment. Continued pressure on the longer end of the curve has fuelled some more steepening, with the 2s10s spread widening 3bp to 113bp. Yesterday, the Ministry of Finance announced RUB 20bn of RFLB 23 and RUB 15bn of RFLB 19 6.70 would be offered at tomorrow’s auctions. So, to some extent steepening was also supported by the new supply.

Colin Smith, Marc Jacouris
VTB Capital analysts


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