Spreads Return to January Levels (Russia Fixed Income Weekly)

Russian Eurobonds were marginally lower last week on the back of weak US Treasuries. Local bonds were little changed, despite high trading volumes.
Global debt markets were relatively quiet last week, with US Treasuries ending marginally lower, after Ben Bernanke commented that the greatest concern for monetary policy makers remained inflation. The spreads of Russian Eurobonds narrowed in the stable environment. However, the increase in Treasuries’ yields resulted in a marginal increase in the yields of Russian bonds. As a result, most sovereign issues ended the week marginally lower. The benchmark Russia 2030 issue lost 0.16% with its spread narrowing by 9 bp to 98.
Corporate issues were flat to marginally higher, with the Deutsche UFG CEB Index adding 0.06% and its spread widening by 6 bp to 177. The largest gains were seen in the Telecoms sector, with the Deutsche UFG CEB Telecoms Index up by 0.20%.
The spreads of Russian sovereign Eurobonds have now returned to the levels seen at the beginning of the year. While we continue to expect that the spreads will tighten further in the course of the year, in the near term such tightening is doubtful, due to the uncertainty over further global interest rate movements. Therefore, we expect the spreads to remain close to their current levels over the next several months. Corporate spreads have tightened with a lag to the sovereigns, so in our view they still have more space for further growth.
Domestic debt was little changed last week, despite relatively high trading volumes. The RGBI Index lost 0.07% while the corporate bonds RCBI Index added 0.02%.
In the meantime, corporate issuers sold Rb 16.1 bn worth of new bonds. The largest issues were those of Sukhoi Civil Aircrafts and Magnit Finans, both of which were for Rb 5 bn. The 10-year Sukhoi bonds were sold at a yield of 8.00% to a 30-month put. The 5-year Magnit Finans issue was sold at a yield of 8.37% to maturity.
Authors: Dmitry Dmitriev ([email protected])
Mikhail Volkhonsky ([email protected])