Bi-Weekly FICC Strategy - October 20, 2021. Russia's Key Rate Set to Exceed 7%

> Oil: At the start of this week, Brent peaked at $86.04/bbl, falling just short of the October 2018 peak of $86.40/bbl, amid the ongoing energy crunch and elevated natural gas prices. We believe that for the rest of October the trajectory for oil prices is still structurally higher, but risks to this uptrend in November-December are building, including a possible gas price correction, a quicker than expected return to the market by Iran, the US releasing part of its strategic petroleum reserves and (though unlikely) OPEC+ front-loading its planned output hikes.> Ruble: Over the next two weeks, high energy prices, exporter FX sales and a CBR key rate hike should push the ruble to USD/RUB 70. However, further appreciation seems unlikely, as the dollar could resume its global rally ahead of the November 3 FOMC meeting and we could get some weak October PMI readings from Europe. We still recommend shorting the euro versus the ruble, as we think EUR/RUB could drop to 80.5 over the coming two weeks.> OFZs and ruble rates: We expect the CBR to hike rates by 50 bps this Friday. We still see value in receiving long rates versus short ones in both swaps and OFZs, as valuations at the long end of the curve appear far more excessive from a fundamental standpoint.> EM bonds: The recent volatility in global markets has resulted in four straight weeks of outflows from EM bonds, which has caused spreads to widen - by 3 bps in the BBB category, 10 bps in the BB category and 15 bps in the B category. We do not expect the situation to change much before the upcoming Fed meeting and assume investors will be in wait-and-see mode ahead of a likely hawkish shift in rhetoric.> FSU sovereign Eurobonds: The spreads of Kazakh and Russian sovereign issues to core rates should continue narrowing. We also still like issues from Uzbekistan and Belarus.> FSU corporate and banking Eurobonds: The performance of Russian corporate dollar Eurobonds over the next two weeks should continue to be driven mainly by base dollar interest rates.> FSU primary Eurobond market: Judging by recent deals, the primary market looks quite healthy, with yield premiums to the secondary market remaining moderate.