Rates Weekly - March 24, 2020

> Ruble liquidity: Demand for liquidity decreasing as situation normalizes, but there is still a risk of O/N rates rising sharply. Last week, banks reduced their correspondent accounts at the CBR by more than R1 trln, as things somewhat calmed down and the ruble stabilized at around USD/RUB 80. Still, there is R0.4-0.5 trln in excess liquidity, as banks are probably still cautious. Meanwhile, the CBR conducted several fine-tuning deposit auctions to absorb the excess liquidity, which caused O/N rates to rise to 5.9%. Since we expect this excess liquidity to remain tomorrow, as the tax related liquidity outflow will be absorbed by an inflow from the netting of CBR operations. Later this week, liquidity will flow in due to budget spending, although the CBR will keep absorbing it via fine-tuning deposit auctions, so we expect rates to stay near current levels. Still, we note that if the oil price and ruble resume dropping, O/N rates could significantly jump.> OFZs and rates: OFZ selling by nonresidents is easing. OFZ quotes are still extremely volatile, although CBR support for the financial sector, including its move to temporarily allow banks to avoid booking securities at market value, has stoked demand from local market participants. Nonresidents continue to reduce their OFZ holdings, though less actively so than before. We anticipate further nonresident outflows given the global efforts to tackle the spread of the coronavirus and the imminent arrival of very weak macroeconomic data. We think any short-term recovery in risk appetite will only serve to provide investors with an opportunity to reduce their positions further, and we expect an outflow of about R60 bln this week.