Daily Market Monitor: We expect the situation to be sustained until a new trend forms in the benchmarks, which should remain the main driver in coming days

The Ruble bond market has found some equilibrium over
past days with favorable environment being balanced by
relatively high prices. Some market participants tried to take
profit yesterday, but that has not developed into correction.
Meanwhile recent developments have demonstrated
significant demand from investors for ruble bonds, especially
first-tier. That has induced the Moscow City government to
come back to the idea of borrowing on the ruble bond market
before the end of the current year, despite having earlier
rejected this option. Moscow city plans to borrow another Rub
7.4 bln by the end of the year; a significant portion of which
could be raised on the ruble bond market — although bank
loans are still considered as the most likely option. We expect
that additional placement of the issues already registered and
a partially placed is most probable. Moscow city has also
revealed its plans to place ruble bonds with a term of 10, 12
or even 15 years in 2005, although the actual parameters will
undoubtedly depend upon market environment. We believe
that potential additional Moscow city bonds placements
should be met with healthy demand and should not shake the
market. Given significant ruble liquidity, investors are eager
for new high-quality bonds. Thus the market should absorb
even the entire Rub 7.4 bln. without problems.
Russia\'s Eurobond market showed signs of a correction
Wednesday, having reached a local high the day before. One
of the formal incentives for profit taking was the lower-thanexpected
Yuganskneftegaz valuation announced by Ministry of
Justice. However strong benchmark performance on the back
of high oil prices — which is threatening economic growth in
the US — acted to support Russian Eurobonds. As a result
the sovereign spread increased by 5 bps to 267 bps, while the
Russia’30 yield reached 6.92% (+1bp). We expect the situation
to be sustained until a new trend forms in the benchmarks,
which should remain the main driver in coming days.