Russian Fixed Income Daily
- Impex-3 placed at YTM 9.46%, good value for investors
- FSK UES promises RBL7bn bond in early December...

FX and money market

Yesterday, following some strengthening of the euro against the dollar the rouble traded around RBL/USD28-81-28.82 on average volumes and gained some 1.5 kopecks. Today, we expect the rouble to weaken by 5-6 kopecks following the euro’s depreciation by 0.5 cents. In the money market, liquidity remained tighter than 2005’s average, with interbank rates increasing to a range of 4-5%. Nevertheless, we do not expect any serious liquidity squeeze in the coming days and also expect the rouble’s decline could limit improvements in liquidity today.

Julia Tsepliaeva, Moscow (7 095) 755 5489

Rouble bond market

On Thursday the domestic bond market demonstrated no clear tendency on a background of low trading activity. Increased uncertainty of where long-term rates could go from current levels, and also relatively high money market rates did not stimulate traders to buy.

In contrast to Wednesday, on Thursday the auction of 10-year Treasury notes turned out to be quite successful with regard to foreign interest. As a result, US10Y erased its former losses and is now trading at 4.56% compared to 4.64% yesterday morning. Nevertheless, we believe that ahead of the new rate hike on December 13, US10Y has nowhere to move in the medium-term perspective apart from upwards in yield, where 4.75% is very likely to become a new consolidation point.

Corporate sector

Yesterday Impex Bank placed its third rouble issue with a size of RBL1.3bn. The coupon rate for the first 1.5 years of floatation was set at 9.25%, which yields 9.46% to put. We expected the YTP of the issue to result in the range of 9.25-9.5%, but anticipated that the point was more likely to turn out closer to the lower border of this range. Apparently, general cautiousness of investors towards Russian banks apparently did not allow Impex Bank to place its issue at a higher price.

Correspondingly, we believe that 9.46% for 1.5 years is a very good buy for the investors who received these bonds at the auction. If we look at the yield graph, in the area of approximately 1% around Impex-3 there are no bonds with similar credit quality, which will grant the paper price appreciation after it enters secondary trading.

FSK UES announced that in the first half of December it would place its third rouble bond issue with a size of RBL7bn. The bond will have three years to bullet maturity and semiannual coupons. FSK UES is rated B+ by S&P and already has two bond issues floating. Based on their current position, we can conclude that if FSK UES-3 was placed today, its YTM would result at approximately 7.25%.

Short term market view

Money market rates are already quite high, but could be significantly higher in the second half of November, when large tax payments will be draining liquidity from the financial system. The continuation of the fall of euro versus the US dollar is also a preferred scenario now, promising further exacerbation of the rouble liquidity deficit this month. We believe these reasons are enough to justify cautious behaviour and holding rouble instruments with reduced duration. Our general recommendation for long rouble bonds remains a Sell.

Dmitry Dudkin, Moscow (7 095) 755 5480