Money market: NDFs widen as volatility picks up
Overnight FX swap rates traded around the 8.0–8.20% level yesterday for the whole session. Liquidity-wise, the situation has changed little. However, banks borrowed RUB 80bn at the Treasury’s deposit auction and secured RUB 49bn from the State Pension Fund (the combined net liquidity injection would be RUB 79bn). Still, the increase in regulatory funding would be offset by the FX interventions. The NDF curve widened near 30bp with 1M NDF closing at 8.99%, while 12M NDF picked up to 9.44%. Longer dated XCCY swap rates moved up 20bp, with the two-year rate closing at 9.09%. In our view, pressure on the NDF came from increased volatility and general pressure on the FX spot. Hence, RUB’s implied volatilities moved up to 14.0–14.3% (+60bp for the day), the highest since June 2012. At the same time, the shape of the NDF curve has changed little. Overall, we still expect the 1s2s spread to flatten further, yet NDF trading at 9.3–9.4% looks an overshot, even adjusted for the probability of a rate hike next week.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst
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