Fixed Income Comment: Russian corporate and banking eurobonds also followed the sovereign curve lower with notable price moves largely confined to the more liquid and longer dated
credits

Amid lacklustre trading conditions and a weaker UST market Russian eurobonds
edged lower on Friday with losses being incurred across the sovereign curve. Still,
the move itself was consistent with the wider EM debt performance and the
Russian EMBI+ spread over UST narrowed by 3 bps to 292 bps, a move that
contributes to an overall tightening of around 17 bps from levels witnessed at the
beginning of the week. At the long end of the curve, the benchmark RU30 opened
at the day’s high of around 965/16 and traded to an intra-day low of 9513/16 before
closing at 961/8 -1/4, and at such levels remains almost 0.6% lower on a cash price
basis over the week. On a spread basis, the RU30 spread over 10-year UST
opened at around 312 bps and tightened marginally to 311 bps and close in its
mid-trading range. Elsewhere in Russia, activity across the ARIES cluster of
credits was also subdued and the more liquid ARIES ’14 was rangebound at
1121/2-3/4 with the spread over RU30 relatively unchanged at around 56 bps.
Russian corporate and banking eurobonds also followed the sovereign curve lower
with notable price moves largely confined to the more liquid and longer dated
credits, particularly the Gazprom issues. Vneshtorgbank placed a 7-year US$350
million 144a bond at a 7.5% yield although following the recent surge in supply of
corporate and banking paper the underlying issue size was lower than the
expected US$500 million.

While Russia has opened this morning on a slightly weaker tone, the benchmark
RU30 first trading at 957/8 (+311 bps over UST), the host of US economic data
releases and subsequent movements in UST are expected to remain the
overriding factor this week in determining price direction. Notwithstanding the
release of factory orders (today) and non-manufacturing ISM data (Tuesday) the
market focus will remain on Friday’s all-important non-farm payroll data,
particularly given the recent mid-year ‘transitory’ period that has resulted in three
consecutive months of below-average readings.