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Local sovereign debt: bounced up

OFZ were in demand yesterday, mainly from foreign real money accounts. Hence, bonds on the long end gained near 11-12pp, while the belly recovered around 6-7pp in price terms. Overall, the curve tightened near 3.0pp in the long end and 4-5pp on the front end and the belly. RFLB 28 closed at a yield of 13.1%, while mid-term issues settled at 15.6-15.8%. Many bonds – especially the longest ones – were squeezed, i.e. it was nearly impossible to find a paper even in the repo market offering money at rates of 0-10% (compare to 60% overnight FX swap). Non-residents still favour the longest bonds, but are gradually starting to look at the belly. To remind, over the past couple of months, foreign investors have generally been switching out of the belly into the long end. Hence, in our view, the most undervalued issues now are RFLB 6.40 20 (YTM 15.4%) and RFLB 7.60 21 (YTM 14.95%). We also favour notes maturing in 2019. As we have argued before, we like mid- and long-term OFZ bonds here, as we expect some disinflation going further.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst


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