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Local sovereign debt: recovery underway

OFZ continued strengthening yesterday. Hence, long end bonds gained 2-3pp, price-wise, while the belly picked up 1.0-1.5pp in price terms. Thus, the OFZ curve tightened 50-60bp along all tenors, so the 2s10s spread remained negative at 200bp. Overall, RFLB 28 closed at a yield of 12.66%, while RFLB 6.70 19 ended at 15.02%. Last week, we recommended buying long- and mid-term bonds after the rate hike, since we think the disinflation outlook was favourable for the market. We still think there is a good probability that inflation is going to calm down in 2H15 after a brief spike. However, OFZs rallied a lot last week, so we think that further potential yield tightening will, to a greater degree, be an issue for the CBR’s monetary policy outlook, because the negative carry is becoming painful here.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst


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