Yesterday’s session was slow, as the international bid was subdued during the US national holiday. The market opened 0.1pp lower, then continued to move deeper into the red for the rest of the session. By the close, the long end lost 0.3pp, while the belly slipped 0.2-0.3pp. Hence, the curve widened 5-8bp in yields, with the belly approaching 11.90% and the long-end rising to 11.60%.
Relative valuations in the OFZ market remain balanced. Despite some correction, the inflation breakeven still seems elevated, so buying CPI-linkers only makes sense as a hedge from tail risks here. Otherwise, choosing between RUONIA floaters and bullet bonds depends on the medium term outlook for the key rate and inflation. Sooner than later, disinflation favours bullet issues and vice versa, though we do not see grounds for the CBR to hike rates. In light of this, the CBR’s policy meeting scheduled for Friday 11 September is a focal point.