Money market: more flattening underway
On Friday, the situation in the money market was little changed. However, short-term rates anchored lower thanks to the CBR’s RUB 300bn three-day repo auction. Banks borrowed the full size at an average rate of 8.12%. Thus, the regulator decided to boost liquidity in order to secure the smooth passage of VAT today. This morning, the CBR announced another two-day repo auction for RUB 320bn to give banks the opportunity to roll over existing debt. Meanwhile, on Tuesday the limit for the one-week auction is likely to be increased considerably, since MET is scheduled for 27 October. Overall, we think the amount of repo debt to the CBR is to reach RUB 3.0tn by the end of the month. In addition, the Treasury is to carry out two deposit auctions this week for RUB 100bn each. If taken in full, this would provide banks with an additional RUB 135bn of liquidity. The overnight FX swap rate closed at 8.64% on Friday, although the weighted-average rate stood at 8.10%. In light of this, front end NDF rates ended flat or a bit higher, e.g. 1M NDF closed at 8.85% (+6bp). Simultaneously, the longer-dated XCCY swap rates nudged down about 15bp, so the 1s2s spread reached -55bp. The IRS curve remained unchanged on Friday, so the basis swap spread has widened slightly. As we have argued before, we think that at the current level, the NDF curve looks fairly priced, even adjusted for the moderate potential rate hike by the CBR this month. Compared to other EMs, RUB's three-month carry is one of the highest now, standing close to TRY on those metrics. If rates move higher from here, we think it would provide certain support to the Russian currency, as carry-wise it would become quite attractive on a global scale, in our view.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst
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