Rates Weekly - November 12, 2019

> Ruble liquidity: O/N rates to dip on surge in budget spending. The elevated level of rates over the last several weeks has generally corresponded with the reduction in the structural liquidity surplus due to tax-related outflows that the Finance Ministry has not been quickly offsetting with increased spending. However, since November 7 the ministry probably has been stepping up spending. We still expect a ruble liquidity inflow of about R0.5 trln by year-end from budget operations. Given the recent surge in budget spending, this could occur in the very near term. If this happens, O/N rates could fall to 6.2-6.3%.> OFZs and rates: CBR starts preparing market for rate cut in December. The Finance Ministry announced today it would offer the 6y OFZ 26229 (November 2025) tomorrow. Demand will probably not be high, as yields are rising - we expect around R20 bln to be placed. Breaking with its usual practice, the ministry will also offer the OFZ 52002 (February 2028) linker tomorrow with no limit set (R38 bln left to be placed in the issue). With the paper offering a real yield of 3.34%, it probably expects high demand. According to a CBR report last week, there was high nonresident demand in October, but we believe that it will decline in November-December. Last week, foreigners began to take profit, and we think there is potential for ruble rates to rise another 5 bps over the next week. Finally, CBR officials have made several important comments recently that have led us to believe that the bank is starting to prepare markets for a rate cut in December, much further in advance than it did before the October meeting.