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Money market: more of the same

 
29.10.2014
Yesterday, the situation with banking liquidity remained stretched, so the weighted-average overnight FX swap rate for the whole session printed at 8.73% (+29bp). Although in the end it traded near 8.0%, banks still secured a tiny RUB 1.1bn in the CBR’s FX swap window. Separately, the CBR allocated RUB 2.88tn at the one-week repo auction, which was basically just refinancing existing repo debt. In addition, we were surprised to see subdued demand at the two-week Treasury deposit auction – banks took only RUB 156.8bn out of RUB 220bn offered at an average rate of 8.30%. Hence, the liquidity injection today is set to constitute just RUB 56.8bn. Overall, the good news is that the tax period has ended, so the interbank lending market is to see less pressure. In light of elevated FX spot volatility coupled with expectations of rate hikes, front-end NDFs widened near 30-50bp yesterday, with 3M NDF closing at 10.01%, while 12M NDF surged to 9.83%. Longer-dated XCCY swap rates picked up just 15-20bp, so the curve flattened further with the 1s2s spread closing at -53bp. Thus, we are closing our flattener trade in the NDF curve opened on 9 October, as our target has been reached. The IRS curve was resilient to the swings in NDFs and FX, so the basis narrowed another 10-15bp yesterday.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

Tags:
money market

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