Russian Fixed Income Daily

FX and money market

Yesterday, just as the day before, activity in FX market was low and trading volumes were below average. The rouble opened at 26.86/USD, and then in the second half of the day, depreciated to 26.91/USD driven by the dollar’s growth in international markets: the dollar climbed against the euro to USD/EUR1.269 after data showed that the US May trade deficit had widened less than expected. Today, we expect the rouble will continue to move according to the euro/dollar exchange rate as usual and see it around 26.88-26.95/USD.
Today, the Bank of Japan begins a two-day policy meeting. As widely expected, it will raise its overnight interest rate to 0.25% for the first time in six years, and comments accomplishing this decision will have major significance. Thus, in coming days international markets will keep their eyes on this event.
In the money market, rouble liquidity continues to be strong. Interbank overnight rates remain around 2% and we do not expect any substantial liquidity squeeze this week.

Rouble bond market

Yesterday, the rouble bond market was rather strong than weak – market sentiment was neutral. Trading activity was lower compared to the previous day, although those who wished to sell bonds simply met demand especially in the first-tier corporate sector. In addition, taking into account uncertainty in external markets which typically spread to local debt, players are cautious, preferring short- and medium-term papers to long ones. Rouble liquidity (overnight interest rates at 2%) continues to be supportive for rouble debt.

The size of primary placements scheduled for this week is modest – three issues will be offered to the market totalling RBL5.25bn, and as a result, we do not expect any lost of interest from the secondary market.

Today, our view on the market remains neutral, with the only warning factor being the uncertainty of external markets. Friday’s US import price index, advanced retail sales, and PPI releases on Monday could freshen the mood for external markets and thus for rouble debt.

Rating news
Today, rating agency Fitch has upgraded Gazprom’s foreign currency and local currency Issuer Default ratings by one notch to ‘BBB-‘ from ‘BB+’ with a stable outlook. Gazprom is rated BB+ by S&P and Baa2 by Moody’s.