Rates Weekly - June 22, 2021. Finance Ministry to Test Demand for New On-The Run OFZs Tomorrow

> Ruble liquidity: O/N rates to push higher ahead of tax payments at end of week, but dip back early next week. Last week, O/N interbank rates remained mostly flat at 5.35%, while correspondent accounts at the CBR averaged around R3.5 trln, R0.7 trln above the required level for averaging, as banks were hoarding liquidity ahead of R1.6 trln tax payments this Friday-next Monday. Tomorrow, when the today's CBR weekly deposit auction will be settled, liquidity will start to contract, and we see O/N rates gradually rising over the course of the week up to the level of key rate, at 5.50%. Early next week, they could drop toward 5.30% as excess liquidity should reemerge while demand for liquidity should be on the decline because of the nearing end of the current reserves averaging period, as well as the liquidity inflow in the form of Federal Treasury deposits and the usual month-end budget spending.> OFZs and rates: Finance Ministry to test demand for new on-the-run OFZs. This week, the Finance Ministry will test demand for the new 8y OFZ 26237 (March 2029) and 20y OFZ 26238 (May 2041). For the second week in a row, it decided to act cautiously and set limits, of R20 bln for the 8y paper and R30 bln for the 20y bond, respectively. The 10y OFZ 26239 (July 2031), launched last week, is trading at a circa 10 bp premium to the "old" curve, and we would expect investors to require the same premium for the bonds offered this week. The market's dynamics and the drop in MOEX trading activity in the last two trading sessions, in our view, suggest that a full placement is not a given. Still, if the bid-to-cover ratios are above 1.5 and yield premiums moderate, we would not expect any tangibly negative reaction in the secondary market.