Rates Weekly - August 10, 2021. O/N Rates Set to Stabilize in New Reserves Averaging Period

> Ruble liquidity: O/N rates set to stabilize in new reserves averaging period. Last week, liquidity was flowing in due to budget spending, while demand for liquidity was declining as the end of the reserves averaging period approached. As a result, O/N rates were very low and the CBR conducted fine-tuning deposit auctions in an attempt to lift them. The new reserves averaging period starts tomorrow and as usual banks will likely prefer to over-average ahead of tax payments later in August. Hence demand for liquidity should be quite high and O/N rates are likely to stabilize around 6.3%. Given there is no CBR meeting in the upcoming reserves averaging period, which will end on September 7, we expect O/N rates to become less volatile, as they won't be affected by expectations of a potential rate hike, as in recent months.> OFZs and rates: Finance Ministry to auction off the two issues that were most in demand among nonresident investors last week. The Finance Ministry has decided to offer up the 8y OFZ 26237 (March 2029, 6.70%) and 15y OFZ 26240 (July 2036, 7.00%) at tomorrow's auction, without a limit for either. This is exactly what was on offer two weeks ago, and it is just what we had expected taking into account the elevated demand these two "new" issues have been seeing in the secondary market. As a reminder, that auction two weeks had the strongest results we have seen since April. While we expect the total volume placed to exceed the average amount the ministry needs to place per week to hit its target for the year, we do not expect significant premiums to be provided. We think that demand will be higher for the 8y issue again.