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Money market: NDFs overreact


Rate markets moved quickly amid increased volatility on the FX spot market, yet without some common direction. Hence, front-end NDF rates surged: the 1M NDF traded around 12.0%. We doubt the market’s liquidity at these levels; however, even at 11.50%, the rate looks interesting to receive, because it implies a 300bp rate hike from the CBR, which we believe is a low probability event. Meanwhile, the 3M NDF widened 85bp to 11.25%, and the 12M NDF closed up 25bp at 10.25%. The longer-dated XCCY swap rates picked up around 20bp in general, so the curve became significantly flatter.

Interestingly, the IRS curve continued moving lower, ignoring the XCCY price action. Specifically, the two-year IRS closed 30bp down at 11.7%, while 3M MosPrime widened 11bp to 10.86%. Thus, the basis swap narrowed a further 15-20bp along the whole curve. We have already highlighted that IRS and basis liquidity has deteriorated visibly this year. Generally, there has been a lack of the offers, while bids have been underpinned by corporate demand for hedging. Hence, it now looks like the latter has eased somewhat. Liquidity-wise, the situation worsened yesterday amid continued FX interventions, so banks secured RUB 54bn from the CBR at the FX swap window. Meanwhile, the Treasury has allocated RUB 120bn to one-month bank deposits at an average rate of 8.96% (minimum set at 8.50%) amid a RUB 255bn demand.

Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market, NDF

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