Rates Weekly - August 31, 2021. Finance Ministry Could Again Place More Than R100 bln Tomorrow

> Ruble liquidity: Abundant liquidity to push O/N rates lower at end of reserves averaging period. Over the last week, O/N rates were rather high due to tax payments, while some banks experienced a liquidity shortage and borrowed around R0.3 trln from the CBR via standing facility loans (and likely also in order to improve their liquidity coverage ratios). Assuming that some banks will keep borrowing R0.3 trln via CBR standing facility loans, over the next five working days, which will be the last in the current reserves averaging period, excess liquidity should keep rising. It will be growing on the back of seasonal budget inflows and the averaging mechanism and could reach R2 trln next week. As a result, O/N rates should gradually decline to 6%, while the CBR will conduct fine-tuning deposit auctions.> OFZs and rates: Finance Ministry could again place more than R100 bln tomorrow. The Finance Ministry continues alternating among the four available on-the-run issues; the 10y OFZ 26239 (July 2031) and the 20y OFZ 26238 (May 2041) are to be offered tomorrow. The ministry has again decided not to set offer limits. We think it is feasible that the issuer will extend its streak of more than R100 bln weekly placements, as new OFZs have been well-bid in recent sessions in the secondary market. We think the 10y bond is bound to elicit higher demand than the 20y. It is currently one of the most liquid new OFZs, with R212 bln outstanding, and it is one of the leading candidates to reach the size limit of R500 bln (along with the 8y OFZ 26237, which currently has R214 bln in circulation). Due to its rapidly growing size, the bond will likely start gradually attracting more interest from accounts that are averse to compliance risks (new OFZs become identical to old ones once the Finance Ministry finishes tapping it in the primary market - see our note).