Rates Weekly - August 3, 2021. No-limit Auctions For the Second Week in a Row

> Ruble liquidity: After sharp spike last week, O/N rates to stay low over coming days amid decreasing demand for liquidity as reserves averaging period comes to end. Last week, O/N rates rose sharply above 7%, as liquidity was in deficit due to CBR operations and taxes. However, later liquidity began to flow in from the Federal Treasury's deposit operations, and this week O/N rates tumbled below 6%. Over the next five working days, which will be the last in the current reserves averaging period, liquidity will continue flowing into the system. Hence, we expect the O/N rates to stay rather low at 6.0-6.2%, while the CBR will likely hold a fine-tuning deposit auction early next week to prevent O/N rates from falling further.> OFZs and rates: No-limit auctions for the second week in a row. Unsurprisingly, the Finance Ministry decided to hold auctions without volume limits for the second straight week. On offer will be the 20y OFZ 26238 (May 2041) and 10y OFZ 26239 (July 2031), which were last auctioned off on July 7 and 21, respectively. We expect solid demand at the auctions and no less than R50 bln to be placed in total. The 20y bond is bound to see lower interest than the 10y, as the curve beyond the 10y tenor remains flat. We note that the 20y OFZ 26238 (May 2041) currently offers the largest yield among nominal OFZs (7.24%), but it appears to us rich relative to the 15y OFZ 26240 (July 2036), which, despite having substantially lower duration, trades only 4 bps tighter.