Rates Weekly - February 25, 2020

> Ruble liquidity: O/N interbank rates set to stay elevated amid lack of liquidity and ruble selloff. Last week, O/N interbank rates remained at around 5.8%, but they have risen to 6% today amid a tax-related liquidity outflow of R600 bln. O/N FX swap rates have risen much more due to a ruble selloff. The ruble liquidity situation will improve tomorrow due to R250 bln of inflow related to the netting of CBR operations, but a mild shortage will remain. This means that O/N rates could fall, but only to about 5.9%. However, the ruble selloff could intensify if further negative headlines emerge over the coronavirus and its economic impact. In this case, FX swaps could surge, pushing O/N interbank rates above 6%.> OFZs and rates: Risk-off trading erases OFZ yield drop last week; yields could continue to rise over next week. From last Monday's close until Thursday's close, OFZ yields were on the decline, supported by news that the 20y OFZ 26230 would be added to the JPMorgan GBI-EM indexes in March. However, the move lower was almost fully reversed due to risk-off trading due to coronavirus concerns on Friday and today (yesterday was a holiday in Russia). The 6y OFZ 26229 (November 2025, 7.15%) will be auctioned tomorrow, and we see R20-30 bln being placed if no yield premium is offered. If the risk-off mood continues, OFZ yields could rise another 10 bps over the next week, we estimate.