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NDF/XCCY keep moving lower on RUB stabilisation

Overnight, FX swap was in demand, with rates at around 6.5%, and banks used RUB 50bn via this facility. As RUB gained some ground in the late trading sessions, XCCY rates moved down (probably, as the market participants started to off-load some wrong-way positions) another 10-15bp in 2-5-year swaps. At the same time, 3-6-month NDF rates are above 7%, implying a substantial risk premium for both rates and FX risks in the coming months. It looks excessive, at 40-50bp above the overnight FX swap rate considering subdued rate hike expectations in the coming months. In particular, this looks rather odd as the curve’s shape is inverted at the moment. As expected, IRS rates are stuck slightly above 7.5% and the basis spread between IRS/XCCY keeps moving wider, to -60bp. However, it looks like the NDF/XCCY curve might find support at around 7% for 2-5-year tenors, as a 50bp spread to the overnight FX swap rate is rather small, given the change in rhetoric by Fed participants and the quite probable speculative attacks on RUB in the future. Thus, we consider that at this level it makes sense to play for narrower NDF/XCCY basis.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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