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Rates: overnight rates hover at 6.0%

As the swap market was also closed for the holiday, overnight money market rates floated around 6.0-6.25% for the repo segment. The inflows from the consolidated budget are slowing (the budget has injected about RUB 700bn into the system in February 2014) as the tax period starts next week. The rates markets functioned in normalisation mode after the RUB sell-off in January and February. NDF rates declined 10-15bp in the front end and XCCY rates were down 1-2bp. At the same time, the IRS curve is not moving down and is trading at 7.50-7.55% for 1-5-year tenors. 3-month MosPrime is also quoted at 7.09% and we consider that the IRS curve prices in a serious worsening of the liquidity environment, as well as some 50bp in rate hikes. Rate hikes are not our base case scenario, therefore IRS remains attractive for receiving. The major risk for this trade is RUB dynamics, as it usually happens that the IRS curve moves up along with the XCCY curve in times of a major attack on RUB (probably due to a reduction of wrong-way risks by market players).
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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