Money market: demand for refinancing increases amid tax payments
Yesterday, companies paid VAT, predictably forcing demand for RUB liquidity upward. Hence, banks used in full the CBR’s two-day repo auction, totalling RUB 320bn. The entire offering volume was allocated, at an average rate of 8.13%. The total bid was RUB 398.4bn. The CBR’s overnight facility covered the unsatisfied demand, allocating to banks RUB 34bn at 9.0%. Despite the start of the tax period, the budget is still the sole largest source of liquidity for the banking system. In particular, the Treasury is today conducting a seven-day RUB 100bn deposit auction. Money market rates were stable yesterday, with the weighted-average overnight FX swap rate up 8bp at 8.18% – although rouble rates are hovering around the 8.60% mark. Hence, the negative swap-interbank basis remains intact, albeit visibly narrowed thanks to the CBR’s FX interventions. Front-end NDF rates tightened 20-30bp yesterday, with the 1M and 3M closing down 27bp at 8.58% and 8.80%, respectively. At the same time, longer-dated XCCY swaps gained near 10bp. Thus, the curve has steepened back, with the 1s2s spread having moved from -55bp to -32bp. We highlight that 1M3M and 3M12M NDF spreads stand at post July-August lows, suggesting that rate hike expectations have eased after the announcement of the start of CBR’s FX repo operations. Overall, we see the current level of NDFs, between 8.8% and 9.1%, as fair.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst
Back to the list