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Interestingly, front end rates have not reacted positively to the stronger FX, as they used to. On the contrary, short-term NDF rates have widened an additional 30-40bp with 1M NDF closing at 10.50%, while 9M ended at 10.30%. Of course, overnight FX swap has climbed up to the 8.50-8.60% area in the MOEX and banks secured RUB 342bn from the CBR in the FX swap window. However, the rate hike was already reflected in prices on Friday, while elevated demand for liquidity was not a surprise on a tax payment day. We think the forward bid was more a reflection of investors’ desire to hedge against any adverse volatility during the May holidays. On top of that, we do not rule out that expectations of further monetary policy have been building in the market. Anyway, at the moment the premium of the front end rate to the cost of FX swap with the CBR stands at 170-200bp, which is close to recent highs. It is unlikely to stay that high for long unless there is a clear hint that we are anticipating a rate hike in June (actually, there is no policy meeting in May, so bidding 1M rates as a play on a rate hike does not look appropriate here). Longer-dated XCCY rates have also climbed 10-20bp, so the curve got more inverted with the 1s5s spread at -140bp. The IRS curve has also moved higher as 3M MosPrime closed at 9.97%, while 1Y IRS ended at 10.46% (+30bp). However, the price action has still fuelled some narrowing of the basis, with the 1Y basis settling at -6bp (+17bp). Today, the CBR is conducting a one-week repo, while yesterday the regulator injected RUB 118bn in two-day repo auction. On top of that, the Treasury is offering RUB 30bn on a two-week deposit, which is just a rollover of existing debt.
Maxim Korovin, Anton Nikitin
VTB Capital analyst

money market

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