Fixed Income Comment: Improving sentiment towards EM debt and ongoing optimism regarding Gazprom related events led Russian eurobonds higher yesterday

Improving sentiment towards EM debt and ongoing optimism regarding Gazprom
related events led Russian eurobonds higher yesterday and the country’s EMBI+
spread over UST narrowed 8 bps to 287 bps. With gains being registered across
the sovereign curve, the benchmark RU30 traded from an opening level of 967/16 to
a high of 963/4 before a weaker UST market led the market slightly lower and the
benchmark bond drifted in New York trading to close at 961/2. A move that resulted
in the RU30 spread over 10-year UST tightening from 310 bps at opening to 306
bps at the high point and despite profit taking activities occurring at such levels the
RU30 spread managed to hold onto such gains and closed at a similar level.
Similarly, buying was also evident across the ARIES asset class and with the more
liquid ARIES ’14 outperforming the spread over RU30 narrowed from 59 bps to 55
bps. With S&P revising its outlook on Gazprom to ‘developing’ from ‘stable’ and its
outlook on oil company Rosneft from ‘negative’ to ‘developing’, the corporate
eurobond market reacted positively with buying evident across most sectors.
Clearly, notable gains were registered across the longer duration and more liquid
Gazprom credits and on a price basis the Gazprom ’13 and ’34 issues
outperformed, up 1.14% and 1.19% respectively. Elsewhere, strong support was
also evident across the Severstal ’14 issue, up 1.4%. Given the continuing
positive sentiment and apparent reassessment of Russian risk, RU30 has traded
higher this morning from an opening of 969/16 to 9611/16 and with the benchmark
spread narrowing further to 303 bps over UST we expect a retesting of the
psychological 300 bps level. At the same time, market focus will also return to the
US economic calendar of which the all-important CPI data release remains the key
data highlight.