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Local sovereign bonds: spreads to swaps widen

On Thursday, the local sovereign bond curve was under moderate pressure, with the yields moving up 3-4bp along the curve. RFLB 28 closed at 8.29%. We believe that the local sovereign bond market has already recouped some 60-70% of the recent decline, largely outpacing the other rates and local currency markets. Thus, we consider that the rally in the RFLB market might continue only with further RUB moves. At the same time, the spreads between RFLB and swaps normalised at around 100bp for bonds in the belly (4-7-year tenor), and there is not so much potential for further widening, in our view.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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