Daily Market Monitor: The short-term dynamics of the Russian Eurobond market continue to reflect benchmark movements

The rouble bond market continues to stand strong in the face of
dollar weakening – demonstrated by growth in the corporate and subsovereign
sectors on Thursday. Still-generous liquidity (money market
rates have remained at their lowest levels over recent weeks) favors the
primary market, increasing investors’ demand for new instruments. On
Thursday the placement of a RUB 3 bln issue from OMK met with RUB
5.4 bln in demand, allowing the setting of the semi-annual coupon
rate at 9.2% and a 9.41% yield for the bonds, which mature in 3
years. Raiffeisenbank and Renaissance Capital acted as lead
managers for the issue. We expect the favorable sentiment on the
primary market to survive into the short-term.
The short-term dynamics of the Russian Eurobond market
continue to reflect benchmark movements. Alan Greenspan’s testimony
before Joint Economic Committee on Thursday appeared rather
balanced and thus neutral for the market. In general his statements
complied with those in the minutes from the FOMC’s latest meeting,
including statements that economy is on firm footing and that inflation
remains under control. Despite the fact that Greenspan’s outlook has
not given a clear answer to the question of when the Federal Reserve
may stop raising rates, the Russian eurobond market looks like
retaining some upside in the mid-term. The potential for further
tightening of the credit spread has been buoyed by the possibility of
external debt contraction in the sovereign sector (according to
government plans) and solid double surpluses (in trade and budget).
On Thursday the EMBI+Russia spread remained unchanged at 169
bps. The yield of Russia’30 added 4 bps to hit 5.71%, following the
expansion of 10-year US Treasury yield by 3 bps to 3.97%.