Daily Market Monitor: The Russian eurobond market hit a record high on Thursday on the back of persistent growth in the benchmark price this week.

The rouble bond market saw improvements in sentiment on
Thursday, buoyed by a stabilization in dollar-rouble dynamics and
swelling liquidity. Corporate and sub-sovereign bonds continued to
outpace government bonds, with the latter falling slightly. Government
bonds seem depressed by record low yields and the prospect of high
inflation this year, which is unlikely to clock in below the currently
projected 10%. In general, the market is conscious of the possibility of
further rouble weakening, which moderates market activity. Rouble
strengthening, which we expect to see in the mid-term, should support
the market. However, increasing inflation and a lack of efficient policy
instruments to contain it looks like one of the main factors pushing
yields up in the mid-term.
The Russian eurobond market hit a record high on Thursday on
the back of persistent growth in the benchmark price this week. The
market appeared indifferent to the government’s intention to finance
an additional $ 4 bln of budget spending from the stabilization fund.
Although the move will not threaten fiscal stability or undermine plans
for the early repayment of Paris Club debt, it may be a signal that
fiscal prudence is not so strong. Nevertheless, the main factor likely to
move the market remains data on the U.S. economy and its ability to
shed light on the plans of Federal Reserve policy makers. Data on
unemployment in the United States in May (5.2% is expected), is to be
released on Friday and may offer clues of how far the Federal Reserve
is likely to go in raising interest rates.
On Thursday, the Russian credit spread tightened to a record low 164
bps. The yield on the Russia’30 lost 10 bps to 5.6%, while the U.S.
10-year Treasury yield fell 2bps to 3.89%.