Fixed Income Comment: Russian eurobonds continued to trade within a narrow range for most of yesterday

Russian eurobonds continued to trade within a narrow range for most of
yesterday, and with UST stronger in late trading following the stronger than
expected demand in the 10-year UST auction and consequently Russian debt
moved higher. Indeed, at 4.27% the yield of the US$14 billion auction was lower
than the market expectation of 4.29% and the bid/cover ratio reached 2.90, the
second highest level in over 10 years. As a result of this move the Russian
EMBI+ spread over UST tightened 5 bps to 316 bps, gradually approaching the
lower end of its recent trading range. With selling pressures once again evident at
the short end of the sovereign curve, namely across the RU07 issue, the longer
duration issues outperformed. The benchmark RU30 traded from an opening
level of 9215/16 to an intra-day high of 935/16 before closing at 931/4, with the spread
over the 10-year UST note remaining within a 338 bps to 334 bps range. The
ARIES credits also tracked the sovereign curve higher with the ARIES ’14 issue
outperforming on a price basis (+87 bps over RU30). Elsewhere in Russia, activity
across the corporate and banking eurobonds was largely confined to the longer
dated and more liquid Gazprom cluster of credits while the announcement by the
Russian authorities to appoint DKW to perform an independent valuation of
Yukos’ main production unit, Yuganskneftegaz, stimulated buying interest across
the Sibneft ’07 and ‘09 issues. Russia has opened this morning with RU30 first
trading at 931/2 (+ 334 bps over UST) and given the firmer UST performance is
expected to edge higher in early trading. Following yesterday’s uninspiring US
economic data releases it appears that today’s US PPI and University of Michigan
Confidence data is likely to be received in a similar submissive manner and the
market focus will remain on next week’s US CPI data.