Rates Weekly - April 14, 2020

> Ruble liquidity: O/N rates could rise sharply in light of mild liquidity deficit, potential ruble depreciation. Last week, the new reserves averaging period started and the O/N interbank rate was stable around 5.9%, 10 bps below the key rate, as liquidity was balanced. This week, we expect to see a moderate liquidity deficit due to a rise in cash in circulation and the redemption of Federal Treasury repo and deposits. Unless budget spending neutralizes these outflows, we would expect the O/N interbank rate to climb around 10 bps on average to about 6%. However, if oil prices resume their decline (which is actually our base case) and the ruble follows along, the money market could experience some stress again and O/N rates could jump above 6.2%, although in this case the CBR could temporarily resume fine-tuning repo auctions.> FX liquidity: FX liquidity situation could deteriorate this year, but longer-term prospects look bright. The Russian money market is currently seeing a slight FX liquidity deficit. We think this deficit could worsen this year due to external debt redemptions, which are much lower this year than they were during the last crisis but are nevertheless not immaterial. We therefore recommend receiving 1y basis swap, which is currently elevated due to the global dollar liquidity glut. However, we maintain a positive view on FX liquidity in the Russian money market and expect it to recover next year and remain benign for many years to come. We therefore recommend paying long-term basis rates.> OFZs and rates: Finance ministry increases OFZ supply. The Finance Ministry will offer the 5y OFZ 26229 (November 2025, 7.15%) and 10y OFZ 26228 (April 2030, 7.65%) without limits tomorrow. The plans to accelerate issuance tomorrow bolster our view that supply will rise this year. According comments by CBR Governor Nabiullina last Friday, the CBR will continue taking into account financial stability and will use a conservative outlook for oil prices. Given that the oil market seems far from stabilizing, we do not expect a CBR rate cut this month.