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Local sovereign debt: short-term rates volatility hurts

Yesterday, the OFZ curve widened 13-15bp along all tenors. In particular, the longest RFLB 28 (YTM 10.40%) lost 0.7-0.9pp in price, while the bonds on the belly declined 0.5-0.6pp. The Ministry of Finance’s attempt to place two bonds showed some interesting results. Overall, MinFin placed only RUB 0.67bn of new bonds in total. To recap, there were RFLB 16 and RFLB 23 on offer for RUB 5.0bn each. However, demand for short-term debt was just RUB 0.5bn, whilst longer notes saw RUB 4.6bn in total bids. In our view, this is a good illustration that market participants see no value in short- and mid-term notes at current yields of around 10.20%, since the funding cost is now assumed at 10.50%. Meanwhile, long bonds are interesting for investors focused on medium and longer term disinflation prospects. In particular, speaking to the State Duma yesterday, CBR Governor Elvira Nabiullina said that monetary policy might be eased in 2H15, when 2014 inflation shocks dissipate. However, MinFin is not prepared to offer a premium so far.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst


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