Rates Weekly - March 30, 2021

> Ruble liquidity: O/N rates set to fall amid declining demand for liquidity as reserves period nears end. O/N rates have been rising over the past week, with the interbank rate reaching 4.5% today, as liquidity has been flowing out due to tax payments. Surprisingly, despite the liquidity scarcity following the tax payments and the approach of the end of the current reserves averaging period (on April 6), banks did not underutilize the CBR's weekly deposit auction and placed R1.65 trln. These banks have probably been over-averaging and their demand for liquidity will decline over the next week, as liquidity in general will be flowing in. Meanwhile, other banks that don't usually place funds via CBR deposits, are probably under-averaging and will have high demand for liquidity, which is why they have been borrowing funds via Federal Treasury O/N repo, and we expect them to keep doing so. Against this backdrop, over next five working days, we expect liquidity to generally be in excess and be growing rapidly as there are only a few days left in the current reserves averaging period. Early next week, we expect the surplus to exceed R1 trln, so O/N rates will likely drop closer to 4%, while the CBR will conduct a fine-tuning deposit auction.> OFZs and rates: Nonresident investors in no rush to buy; Finance Ministry borrowing plan in focus this week. We continue to see the current OFZ yields as unjustifiably high given our expectations that the CBR will only raise rates another 50 bps this year and that the geopolitical backdrop will remain stable. Still, the action in the Treasury market will most likely continue to weigh on the prospects for a recovery in the short term. Treasury yields have been extremely volatile lately, as evidenced by the MOVE index, which has been hovering at the highest levels since last April. The Finance Ministry will publish its 2Q21 borrowing plan this week. Quarterly borrowing could be reduced from the R1 trln planned for 1Q21to R850 bln, assuming the recently discussed cut to the annual plan is spread evenly over the remainder of the year. However, such a decrease in the quarterly plan would be unlikely to garner a market reaction given that less than R500 bln has been placed this quarter.