Rates Weekly - July 27, 2021. Finance Ministry to Offer Two OFZs Without Volume Limits This Week

> Ruble liquidity: Abundant liquidity to turn into deficit and push O/N rates closer to key rate. Last week, banks were strongly over-averaging in anticipation of a 100 bp key rate hike on Friday, which was in fact delivered and took effect yesterday. As a result, liquidity was abundant. However, this week liquidity will flow out due to taxes and CBR operations. We therefore project liquidity being in deficit over the next five working days. This should push O/N rates up to the key rate of 6.5%. Notably, this week the CBR published a press release on changes in reserve requirements that will take effect on October 1, but we think their market impact will be limited.> OFZs and rates: Finance Ministry to offer two OFZs without volume limits this week. Given the strong market conditions and the solid auction last week, the Finance Ministry opted for two auctions tomorrow without set volume limits. For the last three weeks in a row, it had limited its weekly offer to a modest R20 bln. On offer tomorrow will be the 8y OFZ 26237 (March 2029) and the 15y OFZ 26240 (July 2036). We expect to see better results at the 8y auction, as this segment has been better bid recently than the back end, given that the curve after the 8y tenor looks almost flat. This was the case on July 14, when both issues were last auctioned off. We think the Finance Ministry will be targeting no less than a R50 bln placement, which represents its weekly requirement according to its borrowing plan; however, in our view, it will take advantage of the opportunity to place more if market participants do not require a tangible yield premium in excess of 3-5 bps. Overall, we think more auctions without limits are to come in the weeks ahead, which will likely decelerate the ongoing rally in OFZs.