Russia FX Beat - January 10, 2018

> Today's focus. Bond bears getting excited.
> Global trigger: UST selloff. The UST 10y yield moved above 2.50% yesterday for the first time since March last year. In response, high-profile bond investors like Bill Gross and Jeffrey Gundlach have been talking of a bond bear market.
Higher UST yields supported the dollar, with EUR/USD pushing as low as 1.1920. Surprisingly, given its negative correlation with UST yields, the Japanese yen managed to gain versus the dollar. Both the UST and yen moves owed at least partly to a suggestion that the BoJ could scale back its heavy bond purchases.
Yesterday we released a short report on the global risks we see for the year ahead ("A Goldilocks Start to 2018"). In our view, the risk-on mood is set to extend over the near term, but we see a few events that could trip up sentiment. Stretched valuations might result in a steep correction.
> Bottom line. Should the UST 10y yield move further above 2.50%, EUR/USD could make a renewed push toward 1.20.
> Regional trigger: Ruble catch-up. USD/RUB traded with a heavy bias yesterday, the first serious day of trading. Turnover on MICEX reached $3.8 bln. The ruble strengthened to an intraday peak of 56.80 versus the dollar. Exporters were actively selling dollars, conscious that the risk-on mood would push USD/RUB lower.
In addition, the Finance Ministry is not purchasing FX currently. FX purchases are likely to resume on Monday. We also note that Lukoil and Tatneft have to pay a total of R130 bln in dividends by Friday and Monday, respectively.
At 16:00 Moscow time, Russia should confirm December CPI at 2.5% y-o-y, where it was preliminarily reported in late December. A reading below this would likely push OFZ yields even lower and focus attention on the CBR's next meeting on February 9.
Demand for FX liquidity remains elevated. Yesterday, the MOEX O/N USD/RUB swap point fell to zero amid high activity. A subsequent rebound indicated that the CBR may have intervened in the market, like it probably did on December 29. The swap point fared better yesterday than on December 29, when it turned significantly negative at the end of the session absent CBR support (implying double-digit dollar rates), with some participants deciding not to deliver dollars to MOEX.
> Bottom line. Important USD/RUB support is at 56.75-56.80.