Rates Weekly - June 30, 2020

> Ruble liquidity: Major liquidity inflow at end of reserves averaging period to push O/N rates down substantially. Over the last week, O/N rates have climbed to the key rate of 4.5% amid high demand for liquidity from banks after the CBR's 100 bp rate cut. This week, we expect a significant liquidity inflow due to budget spending and settlement of CBR deposit auctions, as banks took up R500 bln less than the limit at the deposit auction, seeking to fulfill the reserve requirements in advance, as the last day of the current averaging period is next Tuesday. Against this backdrop, we see a substantial liquidity surplus early next week, which should push O/N rates to 4%, while the CBR should conduct a fine-tuning deposit auction.> OFZs and rates: OFZ market seeing correction. The correction seen after the CBR's 100 bp cut and what turned out to be a weak take-up in the 1y repo auction comes amid uncertainty about the Finance Ministry's borrowing plan for this year and elevated volatility in global markets. Following these events, demand for OFZs fell sharply in the both the primary and secondary markets. In recent days, meanwhile, nonresidents have been selling. With OFZ issuance expected to be elevated this year, the market seems set to remain under pressure, as medium- and long-dated nominal issues are likely to be predominately offered at upcoming auctions (as has been the case recently).