FICC Monthly Strategy - February 17, 2022. Riding the Waves of Volatility

> Oil: One of the most nagging doubts that oil bulls have about the current rally is the lack of bears. Accordingly, in our view, the market will be susceptible to a news-flow-based correction. In particular, positive headlines out of the Iran nuclear talks in Vienna are a key downside risk in the near term. We expect a deal to be struck in the coming weeks and think the market will sell the headline. We see Brent likely heading below $90/bbl in March as a result, the move exacerbated by depressed global risk appetite amid the first Fed rate hikes since the pandemic started - and possibly by as much as 50 bps in March.> Ruble: Ruble volatility is bound to remain high, but we expect USD/RUB to keep trading in the 74-80 range over the upcoming month.> OFZs and ruble rates: We think it is still too early to start buying nominal OFZs, as we believe they are not fully pricing in the risks of additional monetary policy tightening. We still prefer CPI- and RUONIA-linked OFZs to nominals in the near term. Among the CPI-linkers, we highlight the shorter ones (23s and 28s).> EM bonds: We think the double-BB segment of the EM sovereign debt market will face more pressure than triple-B issues over the coming month, as it takes longer to adjust to moves in US Treasuries given the lack of liquidity and therefore has some catching up to do. If the geopolitical risks de-escalate over the coming month, we expect spreads in the single-B segment, which is less sensitive to moves in benchmark yields, to shrink 30-50 bps.> FSU sovereign Eurobonds: If the tensions over security issues ease, we would pick up the Belarus 23, Russia 26 and Russia 27. Among longer-term papers, we prefer Kazakhstan over Russia.> FSU corporate and banking Eurobonds: We remain cautious in the short term given that volatility will likely remain elevated and the market will probably see higher differentiation across individual credits. In a scenario of gradual easing of geopolitical concerns from here, we would prefer short-dated quasi-sovereign banking paper, as well as oil and gas bonds.> FSU primary Eurobond market: Activity in the primary segment of the CIS Eurobond market has come to a complete standstill, which is not surprising given the circumstances. However, there have been indications over the last month or so that there are a handful of Russian companies that plan to return to the international debt markets if the situation starts to return to normal.