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Local sovereign debt: 12% crossed

Following the price action on the NDF market, the OFZ curve widened 70-80bp. In particular, RFLB 28 (YTM 11.98%) dropped near 4pp, price-wise, while on the belly bonds lost 2pp with RFLB 19 6.70 closing at a yield of 12.30%. Subsequently, the spread of OFZs to the CBR's key rate widened considerably, albeit from the extremely low levels before. Hence, as we have argued before, OFZs traded rich before the recent sell-off. Now, the OFZ carry has returned to historical normality, so we think some local banks might consider bids here. However, even a 100bp rate hike by the CBR might spoil the outlook, so we expect some consolidation here. On the other hand, for investors not that sensitive to the volatility in short-term rates, buying long OFZs makes sense, in our view.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst


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