CIS Fixed Income: Overvalued or justified by fundamenta

Amid growing concerns of excessive valuations across the EM asset class,
ongoing
improvements in both technical and structural factors continue to provide
further momentum to this rally. Russian sovereign and corporate debt has
benefited recently with most benchmark issues trading tighter to near record
levels. In this inaugural publication we consider the outlook for selected
CIS
debt.

Although Russia has underperformed the wider EM rally in recent months we
take
this opportunity to reaffirm our long held view that Russian sovereign
valuations continue to offer value when compared to its expected ratings
implied
levels and expect Russian spread levels, both cash and CDS, to compress
further
and retest the lows reached in October 2005.

We consider the slow start to CIS corporate bond issuance so far in 2006 and
assess whether this is due to being `crowded out\' by the loan market or a
function of prolific issuance in Q4 2005. Our trade recommendation is to
switch
out of the relatively expensive HALYK 09\'s into either the KKB 09\'s (for
45bps
pick up and take out 4.5pts+ in cash) or BTAS 10\'s (84bp/3pts).