Rates Weekly - January 12, 2021

> Ruble liquidity: O/N rates to normalize after unexpected surge at year-end. On December 30, the last working day of 2020, the RUONIA rate rose to 4.27% amid a drying up of liquidity. Somewhat unexpectedly this was triggered by budget operations, as roughly R1 trln in budget spending that was expected to take place in the final days of last year appears not to have happened. These funds not having been disbursed were what caused the liquidity shortage, and banks had to borrow via CBR standing facilities. However, yesterday repo and swap rates started to decline and today the interbank rate is trading around 4.2%, meaning that liquidity remains in balance currently. Likely as a precaution, yesterday banks increased 1m repo borrowing from the CBR by R300 bln to R1.1 trln. Over next week we see liquidity as remaining in balance - it will be gradually flowing in due to budget operations and seasonally declining cash in circulation. Against this backdrop, we would expect the RUONIA rate to trade near 4.2%.> FX liquidity: CBR data reveals strong FX liquidity boost, situation should remain favorable. CBR banking statistics for November released at the end of the year showed FX liquidity having jumped by a significant $12 bln (equaling the growth in FX corporate deposits). Unsurprisingly, after such an inflow, the O/N basis rose significantly over the last two months, and is currently close to zero. Given the strong current account in 1Q21, we would expect further FX liquidity inflow in the coming months. We thus project the O/N basis even turning slightly positive in the short term.> OFZs and rates: We expect R20-40 bln to be placed at tomorrow's OFZ auctions. Since our last publication on December 22, OFZ yields 5y and longer have risen by 4-8 bps amid globally rising rates and a persistently negative geopolitical news flow. We expect OFZ yields to rise 5-10 bps over the next week. Tomorrow, the Finance Ministry will offer the nominal 7y OFZ 26236 (May 2028) and the CPI-linked 10y OFZ 52003 (July 2030). We expect R20-40 bln to be placed in total, with demand for the CPI linker most likely higher than that for the nominal issue, as inflation has picked up over the last two months.