Rates Weekly - November 25, 2020

> Ruble liquidity: O/N keeps sliding on ample liquidity and absence of high outflows. Over the last week liquidity still was in a large surplus and current accounts at the CBR remained about R0.9 trln above the required reserve ratio. Meanwhile, last week's OFZ issuance and this week's tax payment are quite modest. Against this backdrop, RUONIA dropped from about 4.2% to close to 4% on Monday and yesterday. Over the next week we expect the liquidity surplus to remain quite large despite this week's tax payments, while the reserves averaging period will be winding up (it ends on December 8), at which time banks' demand for liquidity should be declining. Against this backdrop, this week the RUONIA will likely stay in the 4.0-4.1% range but could drop below 4.0% early next week.> FX liquidity: FX liquidity receives strong boost and should remain ample for the foreseeable future. Last week and early this week in particular, the O/N basis turned much less negative and rose almost to zero. Meanwhile, turnover on the Moscow Exchange O/N FX swap market has risen by $1 bln. This probably means that FX liquidity has received a significant boost, possibly related to a stronger current account thanks to seasonality and the recent rise in gas and oil prices. Other factors in play included lower external debt redemptions in November and corporate borrowing on global markets. Against this backdrop, FX liquidity appears to be very comfortable right now. We expect it to continue rising as we expect the above-mentioned factors to remain in place. This means that the O/N basis could even turn positive. We would expect the Russian dollar money market to shrug off the traditional year-end global dollar liquidity shortage, which swap markets, and the USD/RUB market, are currently pricing in. We therefore recommend paying 2m and 3m USD/RUB swap rates at the current 3.7% and 3.8%, respectively.> OFZs and rates: Only one issue, nominal 7y OFZ 26236, to be offered today. At today's OFZ auctions, only one bond, the nominal 7y OFZ 26236 (May 2028), will be placed with no limit. (Usually, two or three issues are offered each auction day.) We treat this as a positive sign for long-dated OFZs. Meanwhile, Russian weekly consumer price inflation came in at 0.2% for the second week in a row. If the weekly inflation data shows another 0.2% rise today, this might mean that the effect of the ruble weakening in August-October on inflation has been underestimated. In that case, the chances of a December rate cut would fall.