Fixed Income Comment: Elsewhere in Russia, strong price moves were also witnessed across both the MinFin and ARIES curves, with the more liquid MinFin 5 and ARIES ’14 issues

Russian eurobonds responded positively to Friday’s soft US employment data and
in line with the ensuing rally across UST and EM debt markets, Russia’s’ sovereign
curve moved higher with notable price gains being registered at the long end of the
curve. Indeed, continuing demand in early morning activity contributed to RU30
trading with a slight positive bias before moving sharply post-data to reach a 6-
month high of 995/16 and despite a degree of profit-taking at these levels the
benchmark closed only slightly off the high at 991/4 in New York. Accordingly, this
price move resulted in the yield on the RU30 falling to below 7.0% and
consequently the RU30 spread over 10-year UST narrowed from around 288 bps
(971/2) at opening to 275 bps, its tightest level since mid-April. A similar magnitude
of price increases was also evident across the RU18 and RU28 issues, rising 1.6%
and 1.9% over the day. Elsewhere in Russia, strong price moves were also
witnessed across both the MinFin and ARIES curves, with the more liquid MinFin 5
and ARIES ’14 issues outperforming their respective asset class. Despite the
latter trading to a new high of 116.0 the price rise failed to keep pace with its
sovereign benchmark and consequently the spread over RU30 widened 3 bps to
48 bps. Russian corporate and banking eurobonds were also higher bid across
the curve, and notwithstanding the expected moves across the longer dated and
more liquid Gazprom cluster of credits, both the Severstal and Sibneft issues
registered notable price gains. Russia is expected to open today at similar levels
to Friday’s close, with RU30 at 991/4 (+276 bps over UST), and in our view factors
such as high oil prices and further reports of flows being allocated to high yield and
EM assets continue to support a consolidation at current levels. US markets are
closed today and as such trading will remain subdued, with key economic data
releases skewed towards the latter end of the week.