Global conditions remain turbulent (Russia Fixed Income Weekly)

External debt was mixed in last week’s volatile external conditions. The trend on the domestic market reversed and turned upwards; however, the benchmark indices still ended the week in negative territory.
The week’s main event was Tuesday’s unscheduled 75bp Fed rate cut. This supportive action by the monetary authorities, combined with the announced US tax cut plans, decreased the risk aversion trends. As a result, the demand for safe-haven UST bonds declined. Most Russian sovereign Eurobonds ended the week higher, catching up with earlier gains in Treasuries. The corporates demonstrated mixed performance, with their spreads widening. The DB Russia CEB Index added 0.01%, with its spread up by 16bp. The largest gains were seen among state banks’ bonds. The DB Russia CEB State Banks index added 0.36%.
The next planned FOMC meeting is due to take place this week. Despite the recent unscheduled rate cut, market players expect the Fed to take further action. At the moment, the Fed rate futures price in a 50bp rate cut to 3%.
The domestic market was mostly driven by changes in investors’ risk appetite, and thus headed in the same direction as the global equity markets. After losses early last week, prices have recovered during the last few days. Overall, both sovereign and corporate debt markets ended the week lower. The RGBI Index lost 0.06%, while the RCBI declined by 0.18%.
On Wednesday, Russia\'s Finance Ministry auctioned three new OFZ issues, maturing in 2013, 2018 and 2023. Despite the fact that all the placements were more than two times oversubscribed, the authorities chose to sell the bonds with only marginal discounts to the secondary market yields. In total, RUR 15.6bn of new paper was sold. The Ministry also declared that the total new issuance planned for 2008 is RUR 374bn in OFZs and RUR 105bn in GSOs. Another large placement is planned for this week: the AIZhK mortgage agency is to issue RUR 10bn worth of government-backed bonds maturing in 2012.
Authors: Dmitry Dmitriev ([email protected])
Mikhail Shlemov ([email protected])
Mikhail Volkhonsky ([email protected])