Rates Weekly - December 1, 2020

> Ruble liquidity: O/N rates to drop amid ample liquidity as reserves averaging period ends; CBR monthly repo auction in focus. Last week, O/N rates stayed quite low, as there was ample liquidity. The RUONIA rate traded about 20 bps below the key rate on average, and even R800 bln in tax payments failed to lift it much. This week, despite rather low rates, banks underutilized the CBR's weekly deposit auction by R150 bln, but still placed R2.1 trln through the facility, which is almost R0.6 trln higher than last week's amount. As a result, the ruble liquidity surplus will remain in place and may well exceed R1 trln early next week due to reserves averaging (next Tuesday is the last day of the current reserves averaging period), while banks' demand for liquidity will be low. Against this backdrop, the RUONIA rate could drop to 3.8% next Monday or Tuesday, and the CBR will likely need to conduct fine-tuning deposit auctions. Moreover, next Monday will see the CBR's monthly repo auction, where we expect R1.5 trln to be offered again. We believe it is possible that banks will take in the full amount offered as a precaution. If this happens, liquidity will remain ample until the year-end and the RUONIA should stay around 20 bps below the key rate on average in December.> OFZs and rates: We expect around R50 bln of OFZs to be placed at tomorrow's auctions. Tomorrow, the 10y nominal OFZ 26235 (March 2031) will be auctioned with no limit, while R30 bln of the 5y nominal OFZ 26234 (July 2025) will also be offered. Both issues were little changed in the secondary market following the announcement. We expect the 5y paper to be placed in full, and likely without a significant yield premium to the secondary market, but demand for the longer-dated OFZ, in our view, will most likely be subdued, with only about R20 bln placed. Meanwhile, due to a rising MosPrime 3m rate, interest rate swap rates were up across the curve over the last week, rising 15 bps in the 1y tenor to 2 bps in the 10y tenor. As we do not expect the MosPrime 3m to exceed 5.00% (4.95% currently), we think the 1y rate, which now trades near 4.90%, is unlikely to advance further.