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Local sovereign debt: weak beginning to the year

Over the last week, OFZs lost 2.0-2.5pp on the long end and 1.0-1.5pp on the belly, in price terms. Subsequently, the curve widened near 60bp in almost a parallel shift. Hence, RFLB 28 now trades at a yield of 14.04%, while RFLB 20 6.40 is hovering near 15.95%. Overall, the sluggish performance from crude oil, the Russian sovereign CDS-spread widening and FX weakening were the factors that contributed to the decline of OFZ prices. Meanwhile, 2s10s OFZ spread is holding near -150bp, highlighting the fairly strong expectations (just as other rate markets in Russia) of the CBR monetary easing coming sooner rather than later. One important question for the OFZ market is the Ministry of Finance's borrowing strategy. To recap, the government has said that it plans to borrow more actively on the front end of the curve this year.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst


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