Bi-Weekly FICC Strategy - August 25, 2021. Near-term Softening of CBR Rhetoric Looking Less Likely

> Oil: After last week's selloff, Brent started this week on the right foot, rebounding from $64.60/bbl and toward $71.30/bbl as China has made progress in containing the fast-spreading Delta variant, reportedly bringing local cases down to zero. It is a high-stakes week for the oil and commodities markets in general, as leading central bankers and economists will gather virtually this week for the annual Jackson Hole Symposium. Any hint that policymakers will shift from spurring growth toward curbing inflation earlier than expected could spell more trouble for commodities.> Ruble: Supportive factors for the ruble should strengthen over next two weeks - in particular, we expect the CBR to become more hawkish (further boosting the ruble's carry trade attractiveness), while the trend of global dollar appreciation should come to a halt for a while if the Fed becomes cautious. As a result, USD/RUB could drop to 72.7.> OFZs and ruble rates: We adjust our year-end key rate forecast upward to 7.25% from 7.00% previously. The swap market is currently pricing in only 7.00% for the end of the year, so we see room for widening. In particular, we advise paying the 3m FX swap rate, which is currently trading near 6.40%. The target is 6.70% and the horizon is one month. This should also be supported by an inflow of FX liquidity, as the current account should seasonally improve, while corporates could intensify Eurobond placements in the autumn. For rates and OFZs longer than 5y, the outlook is more benign. We expect international inflows to continue amid cautiously dovish rhetoric from the Fed and stable UST yields.> EM bonds: We expect UST yields to continue trading sideways over the next two weeks, as the Fed is likely to maintain a cautious tone at its upcoming symposium in Jackson Hole. In this environment, we expect BB- and B-rated EM Eurobonds to outperform investment-grade peers.> FSU sovereign Eurobonds: Russia has been outperforming EM peers in August, and we expect that to continue going forward. Belarus has been among the laggards, but we see room for a recovery in light of the news that the country received almost $1 bln under the IMF's SDR program.> FSU corporate and banking Eurobonds: We do not expect to see significant price changes in the first and second tiers in the coming two weeks. The price action in the high-yield segment is likely to be driven mainly by global risk sentiment.> FSU primary Eurobond market: PhosAgro and Nornickel look set to test the primary Eurobond market in the autumn.