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Money market: overnight FX swap is approaching key rate

Thanks to the heavy FX interventions, the balance of US Dollar liquidity is likely improving. Subsequently, demand for FX swap is declining, which, in turn, pushes the overnight FX swap rate higher. Thus, yesterday’s weighted-average overnight FX swap rate picked up to 7.84% (+54bp), while it closed as high as 8.92%. In light of this, 1M NDF widened 30bp to 8.75% and 3M NDF ended at 9.18% (+28bp). Meanwhile, 12M NDF closed at 9.39% (+22bp) and the two-year XCCY swap rate surged 13bp to 9.06%. Overall, we think front-end NDFs will not cross 9.50%, which would price in even a 50-100bp rate hike at October’s CBR policy meeting. Interestingly, the IRS curve has actually moved down 10-20bp, with the one-year rate closing at 12.35% (-18bp). This was a bit surprising, because during the last couple of months the IRS curve has moved in line with XCCY or suffered relatively higher upward pressure. The latter resulted in a considerable basis swap widening, which now stands at some -275-300bp. Hence, yesterday the basis swap narrowed 10-15bp. Liquidity wise, we highlight that the CBR provided RUB 2.38tn at the one-week repo auction at an average rate of 8.12% amid RUB 2.5tn of demand. Hence, today the CBR is to inject RUB 170bn of liquidity in addition to the RUB 50bn liquidity inflow from the 312-P auction settlement. Meanwhile, banks borrowed RUB 96bn from the Treasury at the one-month deposit auction at an average rate of 8.5%. All bids were fulfilled. Thus, the total volume of the Treasury’s deposits is to increase RUB 66bn today to RUB 746bn. Overall, the rouble liquidity balance in the banking system is set to improve markedly today.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market

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