Rates Weekly - June 9, 2021. 10y OFZ To Be Offered for Second Straight Week, Demand Likely To Soften

> Ruble liquidity: O/N rates to rise amid strengthened key rate hike expectations. Expectations for a 50 bp key rate hike this Friday have strengthened in the wake of last night's inflation data, so banks' demand at yesterday's weekly CBR deposit auction was well below the limit. Hence, starting today there will be a lot of liquidity in the system, but demand for it will also be high, as banks will look to over-average ahead of the CBR decision. As a result, over Wednesday-Friday we expect the O/N rates to gradually rise to 5%. Next Tuesday (Monday will be a holiday), they should climb to around 5.3% if the CBR hikes the key rate by 50 bps as expected.> OFZs and rates: 10y OFZ to be offered for second straight week, demand likely to soften. It is not surprising that the Finance Ministry decided to offer up at today's auctions the entire yet untapped amount (R77 bln) in the 10y OFZ 26235 (July 2031) and R21 bln in the inflation-linked 9y OFZ 52003 (July 2030). Given the disappointing May inflation reading published Monday and Friday's CBR meeting (which represents a major risk event), we think the auction for the 10y OFZ could see lower demand than last week, when bids totaled nearly R90 bln. For the same reasons, investors will likely require a larger concession this time around (last week, the yield premium to the secondary market was only 2 bps). Meanwhile, we expect demand at the auction for the inflation linker to be as solid as the previous auction for the same paper on May 19 (R36 bln was sold), and the May inflation reading could have the effect of attracting local buyers, in our view. The bond's principal will be indexed by rather large increments in the coming months: 0.7% in June, 0.6% in July and 0.74% in August.