Rates Weekly - December 14, 2021. Finance Ministry Sets Largest Offer Size at OFZ Auctions Since September

> Ruble liquidity: Ample liquidity overcomes key rate hike expectations and will weigh on O/N rates after the decision. The new reserves averaging period began last Wednesday, and O/N interbank rates briefly rose closer to the key rate. But despite expectations of a 100 bp key rate hike, liquidity has been ample and was enough to push O/N rates to 7.37% today. This ample liquidity will remain in place this week ahead of the CBR's decision, so O/N rates will likely hover around 7.3-7.4%. Early next week, if the CBR has delivered a 100 bp rate hike, O/N rates will likely climb to 8%, but the spread between the key rate and these rates will widen to 50 bps, as excess liquidity on banks' current accounts with the CBR could reach a significant R1.8 trln. This should subsequently be absorbed by the CBR via deposits and tax-related liquidity outflows and the growth of cash in circulation ahead of the New Year holidays. Hence O/N interbank rates should stabilize around 20 bps below the key rate closer to the year-end.> OFZs and rates: Finance Ministry sets largest offer size at OFZ auctions since September. Two auctions are in the pipeline for tomorrow. On offer will be R20 bln of the 15y OFZ 26240 (July 2036) and R30 bln of the 8y OFZ 26237 (March 2029). Thus, the total amount offered will be R50 bln, the highest for the weekly auctions since the offerings without preset limits held in September. Taking into account the still-weak market conditions, we think many auction participants could require yield premiums exceeding 5 bps tomorrow. A R350 bln redemption in OFZs is due tomorrow, but we think investors are unlikely to show a lot of interest in reinvesting into long-duration papers given the asymmetric risks from the upcoming weekly inflation release and the CBR meeting. We would not be surprised if total bids come in below R50 bln tomorrow.