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Market impact: bonds

Bond yields moved up 50-60bp and the sovereign bond curve also flattened; however, the spread between the 2-year and 15-year bonds narrowed only 10bp due to the high correlation between RUB and long-term yields and subsequent margin calls in the interbank market. RFLB Jan-16 (series 25077) was traded at around 7.35%. RFLB 28 is quoted at around 9.0% YTM. In our view, the CBR’s move is likely to justify slightly flatter curves because the rate hikes are temporary and the Ministry of Finance is likely to cancel its auctions in the coming weeks. To recap, MinFin’s borrowing needs look to be quite low due to weak RUB in 2014 (the Ministry of Finance expects an extra RUB 1tn in oil and gas revenues vs. 2014 budget law). Furthermore, MinFin was not satisfied with 8.60-8.65% yields a few weeks ago.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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