Rates Weekly - May 11, 2021

> Ruble liquidity: O/N rates to recover after steep drop during May holidays. Over the last week, there was excess liquidity in the system due to budget spending, and it wasn't fully absorbed by the CBR's weekly deposit auction. As the end of the current reserves averaging period was approaching (it ends today), demand for liquidity was low. As a result, O/N rates tumbled to around 4% and the CBR conducted a fine-tuning deposit auction today. Tomorrow, the new reserves averaging period starts, and demand for liquidity should pick up, as banks will likely over-average as usual. Hence, we expect O/N rates to recover from their currently depressed levels to reach 4.8-4.9%.> OFZs and rates: Finance Ministry returns to primary market with same offering as two weeks ago. Tomorrow, the Finance Ministry will offer the same combination of fixed-coupon issues as it did on April 28: the 10y OFZ 26235 (March 2031) and the 14y OFZ 26233 (July 2035). The offer volumes are R25 bln for the 10y bond and the residual R30.4 bln for the 14y paper. Back on April 28, the offer volumes were R25 bln at both auctions. We find the ministry's decision to avoid heavy supply in the back end as a positive sign per se (for instance, it could have offered R152 bln in the 31s, but it opted against doing so). Even taking that into account, the success of the auctions appears hard to predict and will primarily be a function of domestic demand. If anything, the 30s/31s have constituted the most offered segment of the curve by internationals in recent weeks, in our view.