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Local sovereign debt: normalisation of premium to CBR's cost of repo

On Friday, the OFZ market opened stronger. On average bonds were marked up near 25bp across the board. However, later selling pressure continued and the market closed mostly flat at the end of the day. In particular, RFLB 28 settled at a 9.04% yield, while RFLB 19 6.70 ended at a yield of 8.82%. Meanwhile, bonds on the front end gained near 5-10bp in price, having moved down near 5bp yield wise. Thus, the curve has steepened a bit. Overall, we highlight that following last week's sell-off in OFZs, the spread to the CBR's repo rate has gradually increased from multi-year lows. In particular, the spread of 10-year notes now stands at 145-150bp, up from 100bp just a couple of weeks ago. At the same time, the average spread has stood at near 200bp since 2010, and so local banks are unlikely to engage in bidding for OFZ at current levels. However, we see recent price action as a valuation normalisation, since the market has been pricing too aggressively the soon to come monetary easing.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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