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Russian/CIS bonds: storm

Yesterday, Russian/CIS bonds went through a heavy sell-off, spooked by weaker oil prices and FX volatility. Hence, the Russian 5-year CDS spread widened 26bp to 344bp, tracking the higher NDF rates and pressure on RUB. Long Russian sovereign issues plummeted 2.7-3.1pp in price, the belly dropped 1.0-1.5pp in price, pushing the curve 25bp higher in yields. In high grade, banking notes were under fire: in particular, perpetual VTB (CurY 12.36%) plunged 4.6pp in price, RSHB 18 5.10 (YTM 8.58%) lost 4.9pp in price, subordinated VTB 22 (YTM 9.89%) and SBERRU 24 (YTM 9.47%) declined 2.5pp in price. Long oil and gas names were down on average 2.0pp in price; GAZ 34 (YTM 7.76%) and GAZ 22 4.95 (YTM 7.11%) fell near 3.0pp in price. Following peers, URKARM 18 (YTM 8.67%) and RURAIL 22 (YTM 7.67%) dropped in price 3.4pp and 2.8pp, respectively. In sub-investment grade, subordinated banking notes were hit the hardest: PROMBK 21 (YTM 14.17%) crashed 10.5pp in price, ALFARU 19 (YTM 10.65%) tumbled 6.1pp in price, and RUSB 18 (YTM 30.63%) slipped in price 4.1pp. Among corporate names, VOSTOK 20 (YTM 16.81%) lagged behind and lost 4.2pp in price, SCFRU 17 (YTM 8.91%) dropped 3.6pp in price, TRUBRU bonds ended the day 3.0pp lower in price. Longer metal and mining tenors corrected down near 2.0pp in price and the VIP curve lost 2.0-3.0pp in price. Price slippage in the CIS space was slightly milder, with Ukrainian and Kazakh names the main laggards. Thus, KAZAKS 44 (YTM 5.34%) dipped 1.7pp in price, KTZ 42 (YTM 6.50%) decreased 2.9pp in price, while the KZOKZ curve widened 20-25bp, yieldwise. In addition, DTEKUA 18 (YTM 30.55%) surrendered 3.6pp in price, RAILUA 18 (YTM 26.45%) lost 2.0pp in price, and Ukrainian sovereigns closed 1.5-2.0pp lower in price.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst


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