Fixed Income. Bi-Weekly FICC Strategy - August 11, 2021. Rise in US Treasury Yields Resumes

> Oil: Despite the demand risks stemming from the Covid flare-ups, the global oil market remains fundamentally strong, with demand sufficiently exceeding supply and global inventories continuing to drop. We expect the outbreak in China to be contained quickly, before the peak autumn travel season. And even if the scrutiny on China's smaller private refineries remains, the country's crude import quotas should be released soon, while Chinese oil majors will have to restock their currently low inventories. This will all likely occur just as the market realizes that the return of Iran's supply could be delayed to 2022. Therefore, global oil market fundamentals look set to tighten again during the 4Q21 global oil buying cycle.> Ruble: The ruble has weakened recently amid a globally strengthening dollar, as well as high demand for FX stemming from dividend payments. However, these factors are easing, while foreign demand for the ruble and OFZs remains high. Exporters should also start ramping up their FX sales ahead of tax payments, which could help push USD/RUB back below 73.> OFZs and ruble rates: The OFZ rally has petered out and turned into a decline amid the rise in dollar rates. We expect OFZ yields to continue climbing, though we could see further nonresident inflows to the OFZ market, especially into "new" issues, which are currently quoted around 15 bps above the "old" curve.> EM bonds: We believe that moving forward investors may more actively price in potential Fed tapering after the strong labor market data - this would entail slightly more pronounced outflows from EM bonds and could drive a widening in the spreads of BBB and BB names; meanwhile, in the B bucket, which more closely tracks market sentiment, a further narrowing of spreads looks likely.> FSU sovereign Eurobonds: The focus recently has mainly been on Belarusian issues in light of the recent rhetoric from the West.> FSU corporate and banking Eurobonds: Over the last two weeks, the FSU corporate segment continued to demonstrate weak price dynamics, accompanied by low trading volumes. In our view, the FSU corporate segment is unlikely to move much over the next two weeks as the market remains mired in a summer lull. We expect papers to continue to consolidate close to the current levels.