Fixed Income Comment: Russia is expected to open this morning on a slightly softer tone

Russian eurobonds managed to hold onto early gains on Friday and despite the
weaker UST market post-data release, the long end of the curve closed higher and
led to the Russian EMBI+ spread tightening 5 bps to 272 bps. Amid low volumes
and selective activity the benchmark RU30 opened at 983/8 and initially moved
higher to trade at 99.0 before moving slightly lower in New York to close at 987/8,
and at such levels remains around 0.3% lower than price levels witnessed a week
earlier. Similarly, losses were also registered across the more liquid sovereign
credits compared to prices over the same period and subsequently the sovereign
curve has moved lower over the week. On a spread basis, the RU30 spread over
10-year UST reversed Thursday’s retracement back to the 300 bps level and
narrowed from 299 bps at opening to 289 bps at close. In view of the 300 bps
level providing support for the upside we continue to expect the RU30 spread to
consolidate below this level. With both the MinFin and ARIES curves remaining
relatively flat on Friday, the ARIES ‘14 spread over RU30 widened 3 bps to reach
37 bps. Activity across Russian corporate and banking eurobonds also lacked its
recent resolve and the VTB credits, Vimpelcom ’11 and Sistema Capital ’11 issues
were marked notably lower.
Russia is expected to open this morning on a slightly softer tone, RU30 quoted at
985/8 -3/4 (+291 bps over UST) and direction this week is likely to be strongly
influenced by events surrounding the US economic calendar and corresponding
impact on UST. The key highlights are somewhat front-loaded this week with US
TIC data (today), CPI and housing starts (Tuesday), and also a host of Fed official
public speaking engagements, including Fed Chairman Greenspan speaking on
consumer debt and mortgages (Tuesday).