Yesterday, the overnight FX swap closed at 17.43% (+66bp), while the weighted-average rate for the entire session rose to 16.98% (+37bp). It touched the CBR’s offer briefly, and so banks secured near RUB 10bn in the FX swap window from the regulator. In addition, banks borrowed RUB 215bn from the CBR in the standing overnight repo facility and secured RUB 18bn from the Treasury overnight. Rouble deposit rates remained unchanged, as the MICEX overnight repo benchmark closed at 17.07% vs. 17.10% on Wednesday. Moreover, demand at the Treasury’s 35-day deposit auction was only RUB 179.5bn vs. the RUB 200bn offering. As a result, the average rate printed at 18.05% (just 5bp above the minimum threshold). Also, banks allocated RUB 190bn at one-day deposits in the CBR at an average rate of 16.89%, while the total volume of deposits was RUB 517bn. On correspondent accounts, banks have near RUB 1.38tn in total, above the minimum needed to comply with the averaging regulation for the management of required reserves. Overall, the combined volume of deposits and correspondent accounts is now seasonally one of the highest in history. Hence, there is no such thing as a liquidity shortage in the banking system (quite the contrary), but rather upward pressure in the FX swap market is likely driven by one or a few banks with a misbalance in their liquidity position.
NDF/XCCY rates moved even lower yesterday. On the front end, rates dropped near 100-150bp with 1M NDF closing at 17.85%, while 3M NDF settled at 17.88%. The onshore MICEX 1M XCCY swap slipped even more to 15.52% (-187bp). Overall, the spread between onshore and offshore NDF rates returned to the normal range. Longer-dated XCCY swap rates tightened near 30-40bp with the one-year rate closing at 15.80%. The IRS curve moved down accordingly, while 3M MosPrime tightened 45bp to 21.1%. Hence, the basis remained almost unchanged.
In our view, NDF performance suggests that market participants started pencilling in the soon-to-come monetary easing in Russia. To remind, the next CBR policy meeting is scheduled for 30 January. The NDF/XCCY curve continues steepening, with the 1s2s XCCY swap spread now trading close to -200bp, while it had been -300bp just a week ago. Meanwhile, front-end NDFs are only 150-180bp above the overnight FX swap, while 12M NDF moved deeply inside. At the same time, we highlight that the Russian 5-year CDS-spread is not pricing in any monetary easing right now, which could be an opportunity for a relative value trade, i.e. selling 5Y CDS vs. paying 3M NDF.