Rates Weekly - July 14, 2020

> Ruble liquidity: O/N rates to stay stable for a while but to fall later on expectations of key rate cut. Last week O/N rates gradually rose to 4.35% despite a R400-500 bln liquidity surplus and expectations of a cut to the key rate by the CBR next Friday. Some banks probably decided to ramp up reserves at the CBR ahead of the beginning of new averaging period. We believe rate cut expectations have strengthened recently, which should decrease current demand for ruble liquidity. But over the coming week liquidity will be in a mild deficit, so these two factors should offset each other, and O/N rates should stay near the 4.3% level. Nevertheless, next Wednesday-Friday we would expect the interbank rate to fall to 4.0-4.1%, as expectations of a 50 bp cut should finally prevail.> FX liquidity: FX liquidity to take a hit due to upcoming debt redemptions and dividend payments. FX liquidity recently deteriorated significantly after VEB's Eurobond redemption and likely remains rather thin. In the near future, we will likely see an FX liquidity outflow of a couple billion dollars in total due to Gazprombank's Eurobond redemption (on Friday) and exporters' dividend payments. As a result, the O/N basis could drop to minus 50 bps and the O/N FX swap rate to 3.3-3.4% in early August. Thus, we recommend receiving the 1m USD/RUB swap rate at the current 4.1%.> OFZs and rates: Finance Ministry will have to offer a premium to place the full volume of the floating-rate issue at tomorrow's auction, in our view. Tomorrow, the floating-rate 4y OFZ 24021 (April 2024) and 10y nominal OFZ 26228 (April 2030) will be offered, with a R50 bln limit for each. Given the limited demand for the paper over the last week and rising yield today, we do not expect high demand for this issue tomorrow - we think R10-20 bln will be placed. The next comments on monetary policy are likely to come from CBR officials this Thursday and Friday after the inflation data for the second week of July has been released and before the start of the one-week blackout period ahead of the meeting.