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Money market: NDF/XCCY curve flattens


Yesterday, the overnight FX swap closed 34bp down at 14.52%, while the weighted-average rate for the whole session tightened 15bp to 14.40%. Hence, banks refrained from tapping the CBR’s FX swap window for the first time since 27 March. In addition, the volume at the overnight repo declined RUB 14bn to RUB 46bn. The banking liquidity situation is improving with the beginning of new month thanks to budget spending. In the light of this, the Treasury saw very sluggish demand at yesterday’s deposit auction for RUB 200bn: banks secured only RUB 9.5bn. Thus, today, the total debt of banks to the Treasury would decline by RUB 171bn to RUB 292bn, the lowest level since the beginning of the year. However, that outflow is unlikely to be a big issue for banks, which hold RUB 221bn on deposits with the CBR and run some RUB 200bn in free reserves.

Despite lower money market rates, the NDF curve saw some upward pressure yesterday. In particular, the 1M NDF closed 77bp up at 16.72%, while the 3M NDF moved 25bp higher to 15.7%. Meanwhile, longer-dated XCCY swap rates declined, with the two-year rate falling 22bp to settle at 11.9%. Hence, we highlight that the 1m3m NDF spread moved down near 50bp to -100bp, while the 1s2s XCCY swap spread declined 35bp to -190bp. We believe that stabilisation in the FX market gives the CBR flexibility to deliver more frontloaded rate cuts, but perhaps the market’s participants were concerned that relatively stubborn CPI might actually push the regulator into a more cautious stance.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts

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