Trouble from abroad (Russia Fixed Income Weekly)

Russian Eurobonds declined last week on the overall negative global situation. Domestic debt ended the week higher.
Due to a number of factors, the global debt markets were depressed last week. On Thursday, the Bank of England unexpectedly increased its base rate by another 25 bp to 5.25%. This news caught most market players by surprise and triggered worries that other policy makers in the US and the Eurozone might follow a tighter monetary policy than previously expected. The worries were further supported by a series of strong macroeconomic figures published in the US. All this resulted in an increase of global interest rates. The yield on the benchmark 10-year Treasuries increased by 14 bp to 4.78%.
Russian Eurobonds followed the negative global trend. The benchmark Russia 2030 issue lost 0.91% over the week, while its spread widened by 5 bp to 103. As usual, corporate Eurobonds demonstrated greater resilience to interest rate risks. The loss on the Deutsche UFG CEB Index was just 0.13%, with the spread of the index narrowing by 2 bp to 165. The highest losses were seen in the Oil and Metals & Mining sectors (0.36% and 0.30%, respectively), where the situation was aggravated by falling commodity prices. High-yielding private banks’ Eurobonds, on the contrary, ended the week higher.
The domestic debt market performed better than the Eurobonds. This was the result of a favourable money market situation and high rouble liquidity. Overnight rates remained below 3%, while bank balances with the CBR, despite declining, still exceed Rb 570 bn. Short-term OFZs added about 0.3%. Longer-dated issues, however, were affected by the negative external conditions and ended the week flat or marginally lower. As a result the government bonds RGBI-tr Index was nearly unchanged. Most corporate bonds, which have shorter durations and higher yields, ended the week higher. The RCBI-c Index added 0.20%.
The only primary placement of the week was the 15-year OFZ 46108: Rb 7 bn worth was sold at an average yield of 6.53%, which is in line with the secondary market.
Authors: Dmitry Dmitriev ([email protected])
Mikhail Volkhonsky ([email protected])