Fixed Income Daily: Rather many economic figures are due out this week (inflation data today and tomorrow), which may influence investor mood

EXTERNAL DEBT MARKET
Considerably wider spreads resulting from selling of high-risk Eurobonds,
coupled with US Treasury yield decreases (the 10Y UST was traded at 4.2-
4.25% yesterday), prompted more buying activity in emerging Eurobonds
markets. The EMBI+ index increased by 0.26%, while its Russian
component added 0.35%. The Russia-30 closed at 104.5% (up 0.375%)
yesterday, while its spread narrowed to 216 bp.
This morning, the Russia-30 is already up at 104.75-104.87 (although the
10Y UST yield is 2 bp higher to 4.27%), while its spread has narrowed to
209 bp.
Rather many economic figures are due out this week (inflation data today
and tomorrow), which may influence investor mood.
We recommend buying the Russia-30 at a spread over 200 bp. In our
opinion, the spread may narrow to 170-180 bp as soon as by mid-May
2005 in case an official agreement between Russia and the Paris Club is
achieved, which, from our point of view, is highly probable.
Our recommendation remains unchanged: stay long Russian Sovereign
Eurobonds.
LOCAL DEBT MARKET
Trading activity has remained minimal in the ruble debt market, with the
main investor interest concentrated in the second tier.
In the government bond sector, only the OFZ 46018 traded rather actively
yesterday, with its yield unchanged at 8.84% annualized. Other issues were
mixed amid sporadic deals.
In the Moscow municipal sector, the Moscow-32 and -40 saw several rather
sizeable transactions in the negotiated transaction regime, while investor
activity was minimal in other issues.
Corporates were mixed on low turnover. The exception was the Northgas,
down another 16% on turnover of RUB 131 mn. Further collapse of the
bonds was prevented by speculative support. It should be noted that the fall
of Northgas has not caused frontal selling in the third tier.
A new three-year MegaFon issue is to be offered investors in the primary
market today, and has good chances to repeat the success of other recent
auctions. Ruble liquidity, USD exchange rate and performance of the
Eurobond market have been favorable to the primary ruble debt market so
far. The issue is likely to be fully placed at no premium to the secondary
market.