Fixed Income Daily: Optimism dominated in the (local debt) market yesterday, as the majority of actively traded issues added 0.1-0.3% in rather active dealing

EXTERNAL DEBT MARKET
Yesterday’s US home sales were a bit better than expected, which did not
render significant pressure on US Treasuries. The yields of short-maturity
UST somewhat increased (the yield of the 2Y UST added 3 bp to 3.63%),
while long-maturity US Treasuries manifested practically no reaction. The
yield of the 10Y UST remained in the range of 4.24-2.46% intraday and
closed at 4.25% yesterday.
The EMBI+ index spread has remained at 389 bp for the day on Monday,
while the Russian spread has narrowed by 1 bp to 191 bp.
Against this background, the Russia-30 was traded at 105.875-106.125 (at
a spread of 195-197 bp) and closed at 105.875 in Moscow. Russian
corporate Eurobonds also retreated slightly. This morning, the yield of the
10Y UST is down 1 bp to 4.23-4.24%. The Russia-30 is traded at 105.75-
105.875, while its spread is 199-201 bp.
We recommend buying the Russia-30 at a spread over 200 bp. In our
opinion, the spread is likely to narrow to 170-180 bp as soon as by mid-
May 2005 in case an official agreement is achieved between Russia and
the Paris Club, which, from our point of view, is highly probable. Fitch’s
statement concerning possible Russian Sovereign rating upgrade following
significant early Russia’s debt payments is an additional factor of support.
Our recommendation remains unchanged: stay long Russian Sovereign
Eurobonds.
LOCAL DEBT MARKET
Optimism dominated in the market yesterday, as the majority of actively
traded issues added 0.1-0.3% in rather active dealing.
In the government bond sector, the leaders were the short-dated OFZ
27018 (duration 0.4 years, YTM 3.72%) and the long-dated OFZ 46018
(duration 8.4 years, YTM 8.82%), while investor activity in other issues was
minimal. The long OFZ yield curve remained at 7.5-8.82% for the day.
In Moscow municipals, the most actively traded was the Moscow-36, which
presented one half of the daily sector turnover. Among sub-Sovereigns,
active trading continues in the Moscow Region-5, with over RUB 1 bn worth
of the issue changing hands daily. The yield of the Moscow Region-5 fell by
another 4 bp to 8.83% annualized yesterday, 37 bp below its yield at the
auction.
Trading activity in corporate blue chips increased, with the sector turnover
surpassing RUB 2.7 bn yesterday – something not seen for quite a long
time. The long issues of Russian Railways, Gazprom, FSK and LUKoil
enjoyed the greatest demand. The sector added 0.1% on average. In the
second tier, the leaders were the North-West Telecom-3 and the Russian
Standard-4 that have appeared on the exchange recently, with some RUB
1 bn worth of each changing hands. Trading activity in other most liquid
bonds was higher than usual, with price increases prevailing..