Money market: low overnight pushes NDF down; will CBR launch USD repo?
Yesterday, the overnight FX swap traded above the CBR’s bid during the whole session, but still the weighted-average rate for the whole day printed at 6.73% (-20bp). In the end, the overnight FX swap closed at 6.91%. Thus, by any means the FX carry continued declining. In light of this, front end NDFs moved lower as well. In particular, 1M NDF closed at 7.44% (-20bp), while 3M NDF ended at 7.73% (-18bp). In addition, 12M NDF ended at 8.08% (-20bp) and longer dated XCCY swap rates tightened 15bp along the whole curve. If the CBR does not make its presence in the US Dollar money market more solid, NDFs could continue to slip. The regulator could increase the bid volume, while pricing remains an issue as well. Overall, one way or another, the CBR’s bid is apparently becoming a benchmark for the swap market. Alternatively, the CBR could come out with intervention in the FX spot market, but it would not fit well with the current rules for the BASKET. Meanwhile, we highlight that carry for RUB is starting to look relatively low compared with currencies like TRY and BRL; if the trend continues, RUB would move closer to ZAR on a carry basis. Finally, according to Interfax, the CBR has made some changes to the regulations, which technically make it possible to do a US Dollar repo with Eurobonds. This could be a viable solution for banks as well.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst
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