Back to growth (Russia Fixed Income Weekly)

Russian external debt ended last week higher, as the spreads of Russian securities tightened. On the domestic market, the early losses were followed by gains towards the end of the week.
Russian sovereign Eurobonds posted fresh gains last week on the back of the relatively stable global conditions. The benchmark Russia 2030 issue added 1.18%, with its spread down by 1 bp to 180. Corporate issues were also strong, as their spreads narrowed. The DB Russia CEB Index added 0.85%, with its spread down by 12 bp to 424. The strongest gains were seen in the oil sector, with the DB Russia CEB Oil Index up by 1.85%.
In our view, the current level of Russian debt securities’ spreads is not justified by fundamental factors. Russia’s good macroeconomic position and growth perspectives, along with the improved political visibility in the afterglow of the Duma elections will in our view lead to a gradual decrease in the market yield premiums, both for sovereign and for corporate issues. At the same time, the Russian debt securities market remains highly dependent on global conditions, which could result in high volatility, at least in the short run.
The domestic market also saw a reversal of the negative trend of the previous weeks, following the gains in Eurobonds. After some losses early last week, the benchmark indices posted fresh gains, ending the week near their original levels. The RGBI Index lost just 0.01% over the week, while the RCBI added 0.03%. The market was also given an additional boost by the rapid increase in banks’ excess reserves. The balances on the CBR correspondent accounts more than doubled, reaching Rb 716 bn (a level not seen since March).
We expect the seasonal year-end spike in budget spending to continue fuelling the market with cash and expect this to provide favourable liquidity conditions, ensuring further growth on the local market. The downside risks that there are come from the global markets.

Author: Mikhail Volkhonsky ([email protected])