Ruble, Ruble Swap Curve and Bonds


RUB: back in the black. Trading activity slowed down yesterday, with the MICEX reporting only USD 2.6bn in USDRUB turnover. In the first half of the day, USDRUB traded in a range of 62.80-62.90, yet it touched 63.0 as the US opened. However, judging by the relatively low turnover, international profit taking had subsided yesterday. Meanwhile, general risk sentiment bounced, with the S&P500 index closing up 0.67% last night. Meanwhile, the EM FX space firmed 0.6-0.8%, with ZAR and MXN trading 1.8% and 1.4% up, respectively. On top of that, Brent bounced to USD 52/bbl (+0.9%) on the back of the API report that US crude oil inventories had declined (in contrast to expectations). In light of this, RUB gained 0.9% vs. USD and closed at 62.54. Chinese GDP increased 6.7% YoY in 3Q16, in line with expectations and within the government’s target range for this year of 6.5-7.0%. However, there has been little reaction from the Asian equity markets this morning so far. Today’s agenda includes the publication of the Fed’s Beige Book, which is expected to confirm steady economic activity and keep open the prospect of a December rate hike. There is also the final US Presidential TV debate, though the polls give Hillary Clinton a significant lead.

Money market: rates ease. Yesterday, the overnight FX swap closed down almost 2.0pp at 8.6%, while the weighted average rate declined 24bp to 9.75%. The liquidity situation is perhaps gradually improving on the back of inflows from the budget. Meanwhile, banks secured only RUB 94bn from the CBR in the overnight repo facility (-RUB 31bn vs. Monday). NDF rates closed nearly flat yesterday, as international profit-taking on the FX market slowed down. Hence, the 3M NDF is at 9.67%, while 9M is at 9.44%.

Local sovereign debt: no bounce so far. The market opened on a stronger footing, driven by some international bid. In particular, the belly was in demand and traded 5bp tighter by the middle of the day. We also noted that local accounts were on the bid side as well. However, with the openning of the US session, the offer strengthened. Subsequently, all the initial gains were pared and the curve ended the day nearly flat. Overall, the curve has moved up around 30bp in the belly and 35-40bp in the long end in October. We think that ongoing profit-taking from international accounts is tactical (and thus temporary). At current levels, we think that the belly, trading at 8.6-8.7%, is starting to look attractive to buy. On the other hand, technically international long positioning in OFZs had been building fast this year, so it would take more than just a few days to rebalance.