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Local sovereign debt: every step is harder than the previous one


On Friday, the sovereign debt market opened a tad higher, price-wise. In particular, RUONIA-linked bonds were in demand, with the longest end continuing to enjoy the international bid. However, initial gains failed to hold through until the end of the day. We noted that the belly moved up 3-5bp in yield, while the long end closed flat. As we have highlighted before, at current levels the OFZ curve prices in around 200bp of rate cuts, which is the most bullish view of all the rates markets right now. Hence, any uptick in prices faces increasing resistance, as many market participants could take profits here, we think. Overall, we think that mid-term bonds still look nice, while the best pick up on the curve are is floaters. The longest end is mostly trading on technicals, in our view: international accounts are cutting down the underweights in light of FX appreciating, while new supply from MinFin in that segment remains subdued.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts


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