Rates Weekly - November 30, 2021. Finance Ministry to Return to the Primary Market with Two Nominal Bonds

> Ruble liquidity: Risk of liquidity shortage ahead of the end of reserves averaging period. Today the CBR conducted weekly deposit auction with a limit of R1.9 trln, which was fully utilized by banks and was R0.6 trln higher than last week. Banks have the liquidity to cover this outflow, as their current accounts at the CBR currently stand at R3.2 trln, which is R0.6 trln more than necessary for averaging. But this week, unlike last week, there could be a R0.3 trln net liquidity outflow related to Federal Treasury deposits: it is offering R0.8 trln, while redemptions will total R1.1 trln. If these outflows aren't covered swiftly with for example O/N repo with the Federal Treasury (it usually offers around R0.4 trln), a liquidity shortage could emerge and expand rapidly given there are only a few days left of the current reserves averaging period (which ends next Tuesday, December 7). In our base scenario we would expect banks to tap these repo operations and O/N interbank rates to stay around 7.4%, but in a more risky scenario they could rise above the key rate at 7.5% to, say, 7.7%. > OFZs and rates: Finance Ministry to return to the primary market with two nominal bonds. This week, the Finance Ministry will resume its regular auctions by offering two fixed-coupon bonds in a total offer size of R40 bln, similar to the auctions on November 10. On offer will be the 8y OFZ 26237 (March 2029) and the 15y OFZ 26240 (July 2036). We think it will be harder for the market to digest the same amount of interest rate risk as three weeks ago because of the deteriorated geopolitical backdrop and the return of weekly inflation to 0.2%. Market participants could demand the usual 2-5 bp yield premium at the auctions - in contrast to November 10, when the full size was taken up without concessions.