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Local sovereign debt: new supply in the long end


Yesterday, MinFin announced two auctions for today: RUB 5.0bn for RFLB 23 and RUB 10.0bn for a new RUONIA-linked issue maturing in January 2020 and paying a 97bp spread to the average RUONIA index. We think demand will be high at both auctions, but coming up with a valuation for that long ‘linker’ is hard. Hence, we think market participants would require an additional premium. That said, our assessment of the fair price range is between 95.0 and 105.0. The OFZ curve remained well bid yesterday. However, amid new supply in the long end, the curve has steepened visibly: the 2s10s spread now stands at -65bp, up from -95bp a couple of days previously. On the belly, prices moved up near 0.7-0.9pp, while yields dropped around 20-30bp. In the long end, bonds tightened near 5bp yield wise and RFLB 28 (YTM 11.6%) gained near 0.3pp only. Comparing to other EM markets, we think that the OFZ curve will continue steepening.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts


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