Rates Weekly - January 26, 2021

> Ruble liquidity: Overnight rates falling amid inflow of liquidity from Federal Treasury. Last week, ruble liquidity in the banking system continued to dry up, which was attributable mostly to essentially a lack of placements of budget funds by the Federal Treasury since the beginning of the year. Only on Friday did the Treasury resume placements with banks through deposit and repo operations. Against this backdrop, despite a R900 bln outflow from the banking system due to tax payments being made and the structural liquidity deficit rising to R800 bln, the RUONIA rate has dropped to 4.27%. Today, the CBR raised the offer at its weekly deposit auction by R160 bln to R560 bln, all of which was taken up. Overall, we expect a liquidity inflow of more than R1 trln over the coming weeks thanks to Federal Treasury operations. This should swing the current structural liquidity deficit into a moderate surplus, which in turn should likely push O/N rates down to around 4.15-4.20% on average, i.e. below the key rate.> OFZs and rates: Secondary OFZ quotes supported by announcement that no nominal issue is forthcoming tomorrow. At tomorrow's auction, the Finance Ministry will place just the 7y inflation-linked OFZ 52003 (February 2028) without a limit. The current high inflation is helping generate fairly high demand for the paper. We think that R20-40 bln will be placed tomorrow. Once liquidity begins to recover, the short end of the FX swap curve should start to return closer to normal, with swaps up to the 1y mark dropping 7-12 bps, perhaps additionally supported by a 1.0-1.5% rebound in the ruble. Longer FX swaps and the IRS curve are likely to dip 3-5 bps amid the ruble's recovery.