Rates Weekly - April 6, 2021

> Ruble liquidity: Liquidity ample but dynamics of O/N rates will depend on OFZ auctions. Last week, O/N rates were quite high despite the approaching end of the current reserves averaging period. Demand for liquidity was elevated, as some banks had been under-averaging, while the Finance Ministry unexpectedly sold a quite high over R300 bln in OFZs, the highest amount issued since last autumn. However, this week O/N rates fell to about 4.2% due to a liquidity inflow related to Federal Treasury deposits. Today, the CBR conducted a weekly deposit auction with a limit of R1.7 trln, but banks placed only R1.5 trln. It seems that some banks might hoard liquidity at the beginning of the new reserves averaging period and probably ahead of OFZ auctions tomorrow. If the OFZ placement is again high tomorrow, O/N rates could rise starting tomorrow to around 4.4-4.5%. Otherwise, there will be excess liquidity - about R400 bln, which should weigh on O/N rates, which could trade at about 4.2-4.3%.> OFZs and rates: Record OFZ auctions did not boost secondary market; nonresident outflows continue. The central event of the last week was the weekly OFZ auctions, where the Finance Ministry offered investors two nominal OFZ issues in the amounts of the respective untapped residuals. In total, R355 bln was placed, the highest ever volume of fixed-coupon paper to be placed in a single week. Both placements went through basically without a yield premium to the secondary market. However, last week's strong auctions did not give a significant boost to the OFZ market, despite the stabilization of US Treasuries. OFZs managed to only partially erase the losses incurred before the auctions. If there are signs of expanding demand for OFZs from smaller market participants and nonresidents, this could support the secondary market. Without this, and in the absence of signs of slowing inflation and lower geopolitical risks, the potential for declining yields in the next few weeks looks limited. However, our long-term view on OFZs remains positive.