Rates Weekly - October 19, 2021. Marginal Increase in Offer at Tomorrow's OFZ Auctions

> Ruble liquidity: O/N rates set to stay high ahead of CBR rate hike, tax payments. Banks' correspondent accounts with the CBR should climb to R4.3 trln by the end of this week, R1.2 trln more than required. Nevertheless, despite this abundant liquidity, we believe O/N rates are likely to remain elevated at around 6.8% due to the expected key rate hike. This excess liquidity should dissipate on Monday, as R1.2 trln of MET, VAT and excise payments are due. O/N rates could therefore dip below the key rate, perhaps by around 10 bps, as a structural liquidity surplus of around R1 trln remains. Further downside is unlikely in our view, as Russian companies are set to pay around R1 trln in profit tax and EPT on Thursday, October 28.> OFZs and rates: Marginal increase in offer at tomorrow's OFZ auctions. Tomorrow, R20 bln of the nominal 10y OFZ 26239 (July 2031) will be auctioned off. Thus, the Finance Ministry is restoring the supply of fixed-coupon bonds in a gradual manner, which is positive for the secondary market. To recap, there was no fixed-coupon offer two weeks ago, which was followed by only R10 bln being offered in the 8y paper last week. This cautious approach bodes well for our view that 10y OFZs could outperform EM peers in 4Q21. Generally, we believe that longer OFZ tenors should outperform the front end of the curve moving forward.