Bi-Weekly FICC Strategy - December 16, 2021. CBR Meeting in the Spotlight

> Oil: In the near term, the upside for oil prices is capped by several headwinds. The price action in January is likely to be subdued, as we suspect a lot of the bearish news has already been mostly priced in. However, there is still the risk that the Omicron variant will force governments around the world to impose tougher mobility restrictions. Another major risk is that fears of Fed tightening are unlikely to go away in the near term, so heightened volatility and worries over a possible 2018-style correction may continue to loom over the quarters ahead, especially as inflation risks remain skewed to the upside.> Ruble: As the risk of a sharp hawkish turn by the Fed is out of the way for now and the geopolitical situation is stable with negotiations between Russia and the West continuing, the external backdrop for the ruble is rather favorable. We think the local currency should be able to strengthen to USD/RUB 72 by the year-end amid support from a 100 bp CBR rate hike and elevated FX selling by exporters ahead of tax and dividend payments. > OFZs and ruble rates: The upcoming CBR decision will likely result in a deeper negative slope for the ruble swap and OFZ curves. We expect a 100 bp increase accompanied by cautiously optimistic comments about the medium-term prospects for inflation.> EM bonds: EM bond spreads shrank considerably over the last two weeks: by 15 bps in the BBB and B categories and by 45 bps in the BB category. We do not expect the spreads to change much over the remainder of the year though.> FSU sovereign Eurobonds: We retain our recommendations for the FSU sovereign space. Our top picks include the shorter bonds of Belarus and Russia, the Uzbek curve and long-dated Kazakhstan issues.> FSU corporate and banking Eurobonds: Over the next two weeks, we are set for a further decrease in trading activity as we approach the Christmas and New Year holidays, so quotes probably won't move much.