Fixed Income Daily: Russian Eurobonds held slightly above their previous day’s levels on low investor activity throughout the day yesterday

EXTERNAL DEBT MARKET

Russian Eurobonds held slightly above their previous day’s levels on low
investor activity throughout the day yesterday. The US Treasury market
was stable in anticipation of US economic data. The data came out worse
than expected, in line with the pattern of the last 2-3 weeks. The Chicago
PMI and consumer confidence index were considerably less than expected,
which stimulated a serious decline in US Treasury yields. The yield of 10-
year US Treasury Notes fell by 10 bp to 4.10%. As a result, the Russia-30
inched up to 95.875 in evening trading, but a terrorist attack in Moscow
prompted selling of Russian Eurobonds. The market background
complicated further with the capture of a school with some 400 people in
Northern Ossetia by gunmen this morning. Against this backdrop, the
Russia-30 eased to 95.625 today, while its spread to UST widened by 26
bp to 324 bp over a day. Meanwhile, the Eurobond and bank bond markets
are not falling. On the contrary, a number of issues have seen robust
demand over the last few days, including the Severstal-14, the
Evrazholding-09, the MDM-05 and the Vimpelcom-09. In Long Term We
remain bullish, targeting Sovereign spreads to narrow 50 bp over the next
six months.

LOCAL DEBT MARKET

Most of the traded issues increased on more turnover on Tuesday.
Second- and third-tier issues outpaced the first tier on their way up, the
explanation being their lower liquidity and wide spreads between the tiers.
Although a considerable part of the turnover was in “technical” deals at the
end of the month, optimism is increasing in the market. Investors have
successfully overcome a temporary ruble deficit, and the total bank ruble
liquidity (including bank balances in correspondent accounts at the Central
Bank and bank deposits) has returned to a rather high level of RUB 220 bn,
with o/n rates easing to 3-6%. Oil prices and fundamentals behind
Eurobond growth outweigh all the rest of external and internal negatives,
such as expectations of interest rate hikes and the Yukos case. We expect
the uptrend to hold and recommend buying of the first tier.