Fixed Income Comment: The performance of Russian corporate and banking eurobonds proved somewhat resilient and marginal price declines were registered across most sectors

Though far from exuberant, Friday’s 144k increase in US non-farm payroll data
and associated upward revision to both July and June’s data has reaffirmed
market expectations that a September Fed rate hike is on the cards and the
resultant sell-off in UST led Russian eurobonds lower. Despite the underlying
outcome falling slightly short of consensus, the magnitude of the increase
provoked a negative reaction and the benchmark RU30 traded from an opening
high of 953/16 to a low of 9413/16 before closing in London at around 9415/16. With
the yield on the 10-year UST note rising from 4.215% to a 4-week high of 4.296%
the RU30 spread over UST narrowed slightly from 320 bps to 318 bps. At the
same time, the events surrounding the hostage crisis in Beslan continued to weigh
on sentiment and selling pressures were evident across both the sovereign curve
and the ARIES cluster. Despite relative modest trading activity in the more liquid
ARIES ’14 issue, the spread over RU30 contracted to a new low of 51 bps and
now remains almost 130 bps tighter than at issuance. The performance of
Russian corporate and banking eurobonds proved somewhat resilient and
marginal price declines were registered across most sectors.

Russia has opened this morning at similar levels to Friday’s close with RU30
being quoted at 947/8-95.0, although given the closure of US markets today activity
is likely to remain subdued and direction absent. The focus this week will remain
on the release of the Fed’s Beige Book (Wednesday) and Fed Chairman
Greenspan’s accompanying testimony on the economy before the House Budget
Committee to provide further insight into the Fed’s accommodative policy stance
and its anticipated removal. The onset of the latest batch of price data
commences with the release of import prices (Thursday) and PPI (Friday) will also
be eagerly watched. At the same time, following President Putin’s speech to the
nation on Saturday the market will continue to monitor developments in Russia
with regards to authorities response to Friday’s tragic events.