The storm in the rate markets is gradually fading. Thus, yesterday, the overnight FX swap closed at 5.38%, while the weighted-average rate for the whole session was 6.11%. Banks therefore refrained from using the CBR’s FX swap window (barely a surprise). Apparently, the budget is providing enough liquidity at the beginning of February, which is a usual seasonal pattern. Meanwhile, the State Pension Fund yesterday held a one-month RUB 33bn deposit auction: the average rate was 6.48%; demand was RUB 75bn. This helped offset a marginal, RUB 15bn decline in Treasury deposits, to RUB 270bn. Meanwhile, CCS rates narrowed 20-30bp along the whole cure. The middle part of the curve now trades near 7.0%, still 75bp higher than one-month ago. At the same time, the NDF curve has steepened, with the one-month rate closing at 6.73% and the three-month at 6.97%.
We reiterate our view that receiving the front-end rate at these levels looks interesting, since right from the beginning of turmoil in the FX market we did not believe that the CBR needed to increase rates just because FX volatility had increased – especially amid a continued disinflation trend. FRAs also tightened, with the 3x6 rate down 26bp to 7.35% and 3M MosPrime declining 4bp to 7.18%. Consequently, the IRS curve has dropped near 25bp on the belly, while longer-dated rates tightened 12bp, fuelling some curve steepening. However, the 2s5s IRS spread is still holding at just about 5bp without any good reason, in our view. We therefore believe that there is more room for continued steepening on the IRS curve.