Fixed Income Daily: Bank Eurobonds have been underperforming the broad market recently

EXTERNAL DEBT MARKET
US Treasuries have begun to consolidate in the range of 4.05-4.15% yield.
The US Michigan Confidence Index published on Friday was considerably
above expectations at 94.8 (88.8 expected), but the market treated these
figures extremely calmly, and the yield even fell to 4.07% from 4.10% after
the data release. At the same time, investors in the US Treasury market
have been extremely coolly treating all the recent Fed representatives’
statements signaling further interest rate increases. For instance, the Head
of Minneapolis Federal Reserve has said in his today’s interview to a
Japanese newspaper that he does not see any reasons to discontinue
interest rate hikes. Nevertheless, the 10Y UST yield has inched down today
a little more, to 4.06%. Russian Sovereign Eurobonds also rose following
US Treasuries. The Russia-30 appreciated slightly to 110.000, while is
spread was stable at 170 bp. Today, the market has inched up a bit further.
The Russia-30 was traded near 110.250 by midday.
The Gazprom Eurobonds outperformed the broad market on Friday again.
The long issues (the Gazprom-13 and -34) added 1-1Ѕ %. Purchases of
these papers are going on after the achieved decision to increase the
Russian government’s stake in Gazprom to controlling. The transaction
may be completed de jure already in a few days. Against this background,
the yield spread of Gazprom Eurobonds over Russian Sovereign
Eurobonds has narrowed by another 15-25 bp last week.
Bank Eurobonds have been underperforming the broad market recently
due to mass-scale placements of new bank issues. For example, the Home
Credit Russia ($275 mn) and Alpha Bank ($250 mn) Eurobonds have been
placed at the end of the last week, and Rosbank ($150-200 mn) and
ImpexBank (some $150 mn) Eurobond road shows are taking place now.
Furthermore, VneshTorgBank plans to place a new issue in a few weeks.
In this connection, pressure on the prices of Russian bank Eurobonds may
continue for about a month.
Still, Russian Eurobonds are traded at a yield spread of some 10-15 bp
over Mexican Eurobonds. Against the background of Russia’s early debt
repayment to the Paris Club to begin this month, we believe that the spread
of Russian papers over Mexican should narrow more quickly, and that the
yields on Russian liabilities should be lower than these on Mexico’s by this
autumn.
LOCAL DEBT MARKET
The ruble bond market has remained in an uptrend against the background
of mixed factors. For instance, the ruble has begun gradually strengthening
at last after a prolonged fall, against the backdrop of some USD weakness
in the global market, but overnight rates are still very high at some 5-6%
annualized. Nevertheless, the expensiveness of ruble resources does not
prevent the market from rising. We explain this with quite reasonable
expectations of further amplification of ruble liquidity. In view of new record
high oil prices, mass inflow of repatriated revenues should cause new
growth of ruble liquidity already in a few weeks. Thus, investors are not
selling ruble-denominated bonds in the conditions of temporarily expensive
ruble resources, expecting the situation with ruble funds to improve.
Long-maturity bonds were the leaders of growth again. The Gazprom-4
increased to 102.3 (+0.3%), while the CenterTelecom-4 rose above 110.00
(+0.4%). OFZs and Moscow municipals added 0.1-0.2%. Friday’s price
levels have remained unchanged today amidst extremely thin trading,
although investors are still rather bullish