Rates Weekly - September 29, 2020

> Ruble liquidity: O/N rates set to decline, but by less than usual ahead of the end of the reserves averaging period. RUONIA remained elevated at around 4.2% last week, which may have been due to tax payments. However, despite the end of the tax payment period, the liquidity situation has remained in surplus early this week at about R300 bln, and O/N rates have not eased much. It appears that there is still elevated demand for reserves at the CBR - this could be related to banks' complying with the liquidity coverage ratio as usual, with the period of eased requirements given by the CBR ending in September. Over the next five working days, which will be the last in the current reserves averaging period, we expect the liquidity surplus to climb to a hefty R1.5 trln, not due to significant inflows, but due to the averaging mechanism. RUONIA is therefore likely to come under pressure, but the elevated demand for reserves at the CBR could remain in place. We expect RUONIA to drop this week but not by much (to 4.1%), while next week the CBR could conduct a fine-tuning deposit auction, which should support rates.> FX liquidity: FX liquidity took a hit due to external debt redemptions, could stay pressured in October. Last week, the O/N basis decreased to almost -60 bps, which is rather low, while O/N USD/RUB FX swap turnover on the Moscow Exchange fell by about $1.5 bln, which was likely due to external debt redemptions. This week the situation is improving, but in October FX liquidity could stay pressured if Russian corporates are unable to refinance their quite large debt redemptions. > OFZs and rates: Tomorrow's OFZ auctions to see about R120 bln raised again. Tomorrow, the new 6y floating-rate OFZ 29016 (December 2027) and the 7y nominal OFZ 26232 (October 2027) will be offered (the latter issue has only R20 bln remaining before its registered limit). Given that tomorrow's offering will be similar to last week's, we expect R120 bln to be placed this time around as well. Like last week, the placement of the nominal issue could require a small yield premium of 2-4 bps to the secondary market amid the currently unfavorable market environment.