Daily Market Monitor: The Russian eurobond market still looks more confident than other emerging debt markets, buoyed, as it is, by local developments

The Rouble bond market looks set to stay stuck in the doldrums as
its suffers the impact of Tuesday’s sharp dollar surge and the likelihood
of firm dollar positions against the euro in the coming weeks.
However, as long as liquidity at least holds to current levels, the
market will most probably show resistance to the negative influence of
weakening rouble on domestic debt.
Meanwhile, as part of the Moscow city government’s debt strategy for
2006-2008, a RUB 31 bin bond issue will be placed in 2006, down
from RUB 42.3 bin in 2005, according to reports. The priority of
issuing debt on the public market was also stressed, with the share of
ruble bonds accounting for 81% of total debt in 2006-2008. At BBB-,
Moscow bonds enjoy the highest public credit rating among Russian
sub-sovereigns and the Moscow bond yield curve is commonly
exploited as a benchmark for the rouble bond market.
The Russian eurobond market still looks more confident than
other emerging debt markets, buoyed, as it is, by local developments.
On developments surrounding the restructuring of Russia’s Paris Club
debt, Russian eurobonds have outperformed their direct rivals in
Brazil, Mexico and Turkey since early March. However, the current
strength of the market may be undermined if U.S. economic data
proves stronger than anticipated, releasing fears of more aggressive
interest rates hikes. The release of May’s unemployment rate in the
United States, scheduled for Friday, could move the market.
On Tuesday, based on mixed picture of weak PMI and improvements
in the consumer confidence index, Russia’s credit spread expanded by
2 bps to 173. The yield of the indicitive Russia’30 dropped 5 bps to
5.81%, while the 10-year yield on U.S. Treasuries fell by 7 bps to
4.01%.