MARKET COMPASS

MARKET COMPASS

US Treasuries
CPI in the past, GDP in the future

March CPI data release took center stage in the US debt market last week. The core CPI (ex food and energy) rose just 0.1% versus most economists’ forecasts of 0.2%. We have written earlier that monthly index growth of 0.1% is deemed moderate in the current economic environment, while 0.2% is viewed as fairly fast (as annual inflation then exceeds 2%) and 0,3% (seen in January 2007) as very fast.

Russia’ 30
100bp spread falls

Due to the above rise in Treasuries sovereign benchmark Russia’30 is now trading at 113.85, up almost 100bp from last week, corresponding to a yield of 5.61% and a spread of 95bp over US10Y.

Domestic money market
Steady as she goes

Despite last week’s tax payments, the liquidity situation remains positive in the Russian financial system. The VAT payments on Friday failed to push the overnight rates above 4%, which is not at all high, particularly given the rates which we saw in the first half of March, when there were no tax payments (4–7%).

Rouble exchange rate
Euro closing in on USD/EUR1.3667

The European currency ended last week with flying colours, testing on Friday the USD/EUR1.3637 mark, an inch away from its all-time high of USD/EUR1.3667 registered in early 2005.

Long-term rouble rates
Further progress ahead

Last week, the situation in the long end of the OFZ curve changed slightly for the better with the yield of OFZ 46018 at 6.52% (down 2bp from last Monday) and that of 30-year OFZ 46020 unchanged. Long OFZs, we believe, retain good prospects for a further rise, as the government debt has so far all but failed to take advantage of the recent rally in Treasuries.

Conclusions

- Our outlook on Russian Eurobonds is positive for a short time span and moderately positive for about half a year.
- The rouble debt market looks neutral until the end of the month and positive for all investment horizons.