Rates Weekly - February 1, 2022. Local Bid Should Support Solid OFZ Auctions Tomorrow

> Ruble liquidity: O/N rates to stay subdued at end of reserves averaging period, but surge later. Today, the CBR conducted a weekly deposit auction with a limit of R2.5 trln, which banks fully utilized. The limit was set R1.5 trln higher than last week in order to absorb some of the excess liquidity in the system at the end of the reserves averaging period. However, given the typical budget spending at the beginning of the month, we would expect excess liquidity to reemerge on Friday and then build up throughout next week. Hence, O/N rates could stay around 8.2%, while next week the CBR could conduct a fine-tuning auction. Afterward, we would expect O/N rates to surge on expectations of a key rate hike.> OFZs and rates: Local bid should support solid OFZ auctions tomorrow. The Finance Ministry will return to the primary market this week with a no-limit auction for the 8y OFZ 26237 (March 2029). This is a more aggressive choice than we had expected, as we had thought the ministry might go with a CPI-linker or even cancel the auctions altogether. That said, the market should be able to digest at least R50 bln tomorrow without a large yield premium, in our view. We think the current yield levels appear excessively high to many local investors, judging by the recent price action. Meanwhile, we expect the international bid to likely be lower than usual (Maksimov said a week ago that the share of nonresidents at auctions has been 10-15% recently) due to the ongoing sanctions noise.