Rates Weekly - February 18, 2020

> Ruble liquidity: Overnight rates to rise due to tax-related outflows, but likely only temporarily. Last week, O/N rates remained subdued at around 20 bps below the key rate due to somewhere around R250 bln in excess liquidity in the system. This week, the liquidity situation should be more balanced, with O/N rates slowly drifting upward for most of the week and then moving even closer to the key rate on Friday as banks start to hoard liquidity ahead of the long weekend and large tax payments due next Tuesday, when O/N rates could even move above the key rate. However, the rise in the O/N rates will likely be short-lived, as these funds could flow back into the system from budget spending at the end of the month. As for the longer-term outlook, the negative spread between O/N rates and the key rate could decrease due to the settlement of the sale of Sberbank shares from the CBR to the National Wealth Fund, which could cause a combined R1.25 trln liquidity outflow over the next several years.> OFZs and rates: OFZ yields continue to drop after CBR decision. Medium-dated OFZs have posted the biggest declines in yield since last Monday's close, shedding around 10-13 bps. Other issues have fallen 5-10 bps. After last Wednesday's auctions, where the Finance Ministry placed as much long paper as it could, the curve steepened. High demand in the belly, limited short-dated issuance and modest demand at the long end should ensure further steepening.