Rates Weekly - September 1, 2020

> Ruble liquidity: O/N rates set to fall sharply amid large liquidity surplus at the end of reserve averaging period. The Ruonia edged up to 4.18% at the end of last week as liquidity flowed out due to tax payments and a slight liquidity deficit emerged. However, liquidity began to flow in this week and a significant liquidity surplus has arisen. The CBR will absorb this over the next few days, but late this week and early next there will be a R500 bln liquidity inflow related to budget operations. Given that there are only a few days left in the current reserves averaging period (it ends next Tuesday), these inflows will result in a very large liquidity surplus late this week and early next. We therefore expect O/N rates to drop below 4% to around 3.9% and the CBR to conduct fine-tuning deposit auctions next Monday and Tuesday.> FX liquidity: FX liquidity to increase amid quite favorable external backdrop. Over last week, the O/N basis dropped to about minus 30-40 bps, signaling that FX liquidity remains quite thin. However, there are reports that Russian corporates plan to tap the Eurobond market in the near term. Moreover, about $1 bln of it should flow in during September due to redemptions of Russian sovereign Eurobonds and coupon payments on them. Thus, we would expect the O/N basis to become less negative in September and stabilize near minus 10 bps.> OFZs and rates: Finance Ministry may place R50-70 bln at tomorrow's OFZ auction. The Finance Ministry announced today that it would offer the remaining R33.7 bln of the 10y nominal OFZ 26228 (April 2030) and place the 6y floating-rate OFZ 29014 (March 2026) without a set limit at tomorrow's auction. After the announcement, the price on the10y paper barely budged, while the yield had fallen before the announcement was made. It is quite possible the ministry will be able to place the full amount offered. As for the floater, its discount margin rose 4 bps after the announcement. We expect around R20-40 bln of the paper to be placed if the Finance Ministry refuses to offer a premium to the secondary market.