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Local sovereign debt: belly in demand

OFZs continued to enjoy a solid bid yesterday. However, unlike in previous weeks, the belly of the curve was in higher demand than the long end, which helped the curve to steepen. In particular, the 7s10s OFZ spread tightened from -80bp to -65bp. In particular, RFLB 19 6.80 (YTM 15.01%) gained almost 1.00pp, price wise, whilst RFLB 28 (YTM 13.3%) firmed just 40bp in price terms. Subsequently, OFZ yields on the belly declined 30bp, while long end rates moved down 4-7bp. We think market participants switched their focus to the belly because of poor liquidity in the longer end. However, the bull steepening might also highlight the stronger expectations for monetary easing.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst


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