Rates Weekly - May 19, 2020

> Ruble liquidity: O/N rates dropped as liquidity started flowing in. Last week, ruble liquidity flowed in due to budget spending and Federal Treasury funds deposited at banks, which outweighed the growth of cash in circulation (which is still happening). This caused O/N rates to drop to 20 bps below the key rate. This week, the mild liquidity surplus should remain, and O/N rates will likely stay unchanged even next week, as tax-related outflows will be small due to the oil price collapse and subdued economic activity. Meanwhile, Finance Ministry probably received R1 trln in proceeds from the Sberbank sale by the CBR, which could result in a significant liquidity inflow in the short term.> OFZs and rates: Nabiullina's press conference on Friday in focus. At the press conference, she might shed light on the CBR's view on a possible 100 bp cut in June and also the use of CBR long-term repo by local banks to fund OFZ purchases. We expect OFZ yields to react by pushing higher at both the long and short end of the curve, and therefore we prefer issues in the belly. At tomorrow's OFZ auctions, we anticipate high demand for the nominal issues and think around R160 bln will be placed.