Rates Weekly - March 3, 2020

> Ruble liquidity: O/N rates should not drop much, despite end of reserves period nearing. Last week, O/N rates remained elevated, as liquidity was in mild deficit. They even shot up temporarily when the ruble sold off sharply. We believe the moderate liquidity deficit is likely to persist this week despite an inflow of liquidity. Thus, we think O/N rates are unlikely to drop as much as they usually do during the last week of the reserves averaging period (the current one ends next Tuesday). Moreover, there is a possibility the ruble selloff will resume this week, which would push swap rates and interbank rates higher.> OFZs and rates: Rising volatility throws CBR rate cut this month into question. Up until last Thursday, ruble rates were rather stable, but the global risk-off move led to a selloff in ruble assets as well. OFZ yields and other ruble rates then became extremely volatile, the volatility peaking last Friday. Since February 21, rates longer than 1y have risen 20-25 bps. We expect markets to be disappointed by what amounts to a wait-and-see approach from the G7 announced today, so we think another wave of selling across ruble assets could take place over the next week. Given the current market environment, we expect the CBR to hold off on cutting rates at its meeting this month in order to support financial stability.