Rates Weekly - October 6, 2020

> Ruble liquidity: O/N rates to return to elevated levels as new reserves averaging period begins. Over last week, which was the final week of the current reserves averaging period (which ends today), there was a decent-sized liquidity surplus of about R500 bln on average. As a result, the RUONIA rate, which had previously held at a quite-high level of 4.2% on average (probably due to demand for reserves to meet LSR requirements), dropped to 3.9% last Friday, but the CBR's fine-tuning deposit auctions yesterday and today have helped lift it back to 4.1%. Still, it should be noted that despite the significant liquidity surplus that formed near the end of the reserves averaging period, O/N rates did not drop as much as they usually do. This probably indicates that demand for reserves at the CBR remains higher than usual. Consequently, over the course of this week, when we should see a slight liquidity deficit emerge, we would expect O/N rates to climb to about 4.20% on average, which is quite high compared with most of the rest of this year, when the RUONIA rate was usually 15-20 bps below the key rate.> FX liquidity: FX liquidity remains under pressure. Last week, the O/N basis dropped to about -55 bps on average, the lowest level for a week this year. It seems that FX liquidity likely remains pressured by external debt redemptions, while FX inflows are scarce. Longer-term basis swaps have also started to feel the pressure, with the 1y USD/RUB basis dropping 10 bps to -65 bps over the last week. It seems that the situation is set to only worsen in the short term, given the upcoming Eurobond redemptions. Thus, the O/N basis could drop to -60 bps on average later in October and for a time even to -70 bps, while the 1y USD/RUB basis could fall to -100 bps, where we would recommend receiving. Only in November do we expect the situation to improve and basis swaps to turn less negative - this is when external debt redemptions will decrease, while the current account should be seasonally higher.> OFZs and rates: We see around 180 bln of OFZs being placed tomorrow. The Finance Ministry announced today that tomorrow it will offer the 10y floating-rate OFZ 29013 (September 2030) with no limit and the 5y nominal OFZ 26234 (July 2025) with a R30 bln limit. We expect around R150 bln to be placed in the floater and the full amount in the nominal issue.