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Money market: FX volatility hurts rates

On Friday, the overnight FX swap closed at 10.58% and during the whole session it traded around the level of the CBR's key rate. In contrast, rouble liquidity benchmarks like RUONIA and the overnight MICEX repo rate hovered near 11.0-11.5%, so the negative spread between FX swap rates and the cost of rouble liquidity persisted. Although there was no RUONIA reading on Friday, it could be said that the negative spread narrowed. Meanwhile, banks borrowed RUB 200bn at the overnight repo window at the end of the week (down from RUB 534bn on Thursday) and refrained from using the FX swap window. In addition, the volume of Treasury deposits declined RUB 132bn from Thursday to RUB 830bn, so it is no surprise that the balance of banks' correspondent accounts with the CBR shrunk RUB 0.6tn to RUB 1.5tn. This is still well above the minimum needed threshold, we estimate, but the usage of repo collateral is running close to historical highs at 75%. NDF rates widened near 200-250bp on Friday on the back of elevated FX volatility, with 1M closing at 16.3%, while the 3M widened to 17.5%. Longer-dated XCCY swap rates increased near 60-90bp. The IRS curve moved up 20-40bp, so the basis swap has narrowed once again.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market

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