Rates Weekly - December 22, 2020

> Ruble liquidity: O/N rates surged as liquidity deficit emerged, but should drop before year-end on budget inflows. Last Wednesday, about R0.6 trln net in Federal Treasury deposits and repo were redeemed, though this liquidity outflow was partially compensated by banks reducing their weekly deposits at the CBR by about R0.4 trln. Thus, the structural liquidity surplus turned into a slight structural liquidity deficit, the first one since 2017 and the RUONIA rate surged above the key rate to 4.32%, the highest level since September. Later in the week, R0.6 trln of liquidity flowed in, mainly related to budget spending. The RUONIA rate fell only to 4.27% and will likely stay above the key rate this week, however, ahead of an estimated R1 trln in tax payments due this coming Friday. According to our estimates, next week R1.6 trln of liquidity should flow in on budget spending just ahead of the year-end. Against this backdrop, we expect O/N rates to drop to 4.10% next Monday-Tuesday and probably to 4.0% or even lower next Wednesday-Thursday (after settlement of next week's CBR deposit auction) depending on when and how the spending goes through.> OFZs and rates: OFZ market under pressure from several key risks. The pickup in inflation is causing increased concern among investors, especially as the CBR is now reporting that the disinflationary risks in 2021 are no longer as prominent as they were previously. Against this backdrop, elevated demand is being seen for inflation-linked OFZs from both nonresidents and locals. At tomorrow's auction, the Finance Ministry will offer only the inflation-linked OFZ 52003 (July 2030) with a limit of R10.1 bln (we think that the full amount will be placed).