Fixed Income Comment: Despite low trading volumes further price gains were registered across Russian eurobonds on Friday

Despite low trading volumes further price gains were registered across Russian
eurobonds on Friday as yet another batch of price supportive economic data
pushed UST higher and consequently the EM asset class followed suit. As a
result of Russia’s sovereign debt moving higher across the curve the Russian
EMBI+ spread over UST narrowed 4 bps to 312 bps, its lowest level since end
July. Once again the long end of the curve outperformed and the benchmark
RU30 traded from an opening level of 931/2 to close at the day’s high of around
941/16 -3/16 , and on a price basis remains almost 2.5% higher over the previous
month. With the yield on the 10-year UST note falling from 4.256% to 4.229% the
RU30 spread over UST tightened by 4 bps from 334 bps at opening to 330 bps at
close. While the ARIES cluster of credits tracked the sovereign curve higher the
ARIES ’14 issue outperformed to reach a new traded high of 1081/4 and the
spread over RU30 contracted from 87 bps to 85 bps. Elsewhere in Russia, the
corporate and banking eurobonds were generally higher bid with noticeable price
moves being registered across the telecoms credits and the the longer duration
Gazprom issues. Russia has opened this morning on a slightly firmer tone and
RU30 first traded at 941/8, with the spread over 10-year UST tightening further to
327 bps. While the recent trading range would indicate that at these levels Russia
remains vulnerable to selling pressures, direction this week is again likely to be
dominated by the US economic calendar which in our view will remain price
supportive and the market retaining its bid. With regards to the scheduled data
releases tomorrow’s CPI will remain the key focus as the market seeks to reaffirm
the Fed’s recent assessment that underlying inflation is still expected to be
relatively low.