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Market impact: rates

The market reaction was a parallel 100-120bp shift in the NDF/XCCY curve, while overnight FX swap jumped to 7.90%. The short-end move was expected, due to the new CBR offer in the overnight FX swap rate at 8% (also fuelled by heavy CBR interventions in MICEX) and 3-month NDF rate at 8.2-8.5%. However, the XCCY curve priced in a substantial risk premium as the 2-year XCCY rate trades at 8.45% and the 5-year tenor is quoted at 8.1%. Thus, the market suggests that, if RUB remains under significant pressure, the CBR’s decision might be followed by bolder steps in rates (similar to 2008/09-style moves) or the decision is not temporary. Given the temporary nature of the decision, the inverted curve is justified more than the flat or steep shape. IRS rates also took a hit, with 3-5-year IRS at 8.5-8.6%. However, if the CBR makes further steps, the XCCY curve is likely to continue being under more significant pressure than the IRS curve. Hence, further pressure on the CBR is fuelling more basis swap spread narrowing. Yesterday, the basis spread was traded at approximately -20-30bp in the 3-4-year tenors.
Maxim Korovin, Anton Nikitin
VTB Capital analyst

rates, CBR

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