Fixed Income Daily: The total volume of Eurobonds to be placed may reach $1 bn

\'TIS THE SEASON...

I was asked by a reporter why so many Russian banks are coming to market
now. My answer in a nutshell, \"Tis the season\". Summer holidays are over,
the investment bankers want to realise the mandates they hold, and the
market has been trending up. In the case of MDM and Russian Standard the
issuance is opportunity driven. MDM has seen an increae in business since
the mini-crisis as corportes have lost facilities from smaller banks.
Russian Standard, as a consumer finance driven institution, is entering its
busiest season. The concurrence of issuance will certainly increase the cost
for all issuers, but not by a significant amount inlight of the current
margins on commercial business.

EXTERNAL DEBT MARKET

The yield of US Treasuries decreased yesterday in response to several
factors. First, the level of 10Y UST yield of 4.30% has been a strong
resistance over the last two months and was perceived by investors as a
good level for buying; thus, when the yield approached this resistance level
once again the day before yesterday, buying activity increased again.
Second, a number of major international banks have downgraded
yesterday their forecasts of the US economy growth rate in 2H04, which
also caused more investor interest in bonds. Against this background,
Russian Eurobonds increased considerably yesterday and today, entirely
regaining their losses incurred on the latest terrorist acts in Russia. The
main driver of the Russian Eurobond growth was their spread narrowing
rather than the US Treasury market. The spread of the Russia-30 to the
10-year US Treasuries has narrowed from 318 bp to 300 bp. Today, the
Russia-30 has risen to 96.375 from 94.875 the day before yesterday. The
Aries-14 grew considerably, adding 1.25% and narrowing their yield spread
to the Russia-30 below 50 bp, to 48 bp. The Gazprom Eurobonds followed
the Sovereign yield curve on their way up, appreciating 0.5-1%. Other
corporates increased 0.25-0.75%. Following the controversial comments on
the Russian banking system by S&P, investors chose to respond to the
agency\'s words that Russian bank ratings would increase, although at a
slower pace. Almost all bank bonds increased 0.25-0.375% yesterday.
Meanwhile, the bank segment in no way reacted to the plans of mass bank
borrowings over the next few days. Road shows of MDM Bank, Russian
Standard Bank, the Bank of Moscow, and Moscow Narodny Bank
Eurobond issues are to take place over the next several days. The total
volume of Eurobonds to be placed may reach $1 bn. Market participants
are waiting for the speech of US Fed Chairman Greenspan on the Beige
Book and results of the 5-year US Treasury Note auction today.

LOCAL DEBT MARKET

The majority of the most liquid issues decreased insignificantly on average
turnover on Tuesday. The yield curve of long issues was almost unchanged
and is now at 7.6-8.13%. In the Moscow municipal sector, the main activity
was concentrated in medium-dated issues. In corporate blue chips, the
most turnover was in the VTB-4. There are no reasons now for major
investors to cut or increase their positions aggressively in the first tier. In
the absence of a clear trend, investors prefer to work with short- and
medium-dated second-tier issues. It is worth noting that liquidity in the
banking system has evidently worsened recently. Overnight rates have
been at 6-10% since the end of August till yesterday. Meanwhile, investors
(major banks, most of which are net capital exporters) have been actively
using the mechanism of repo deals with the Central Bank. A possible
explanation of such a prolonged deficit of rubles may be upward plays on
the US dollar. If tension in the banking system were to continue against the
background of steady US dollar rise (which is exactly what is taking place
now), this may become a reason to more pessimistically assess the
consequences of capital outflow and the actions of the Central Bank.