Daily review of the debt markets. Fed Extended Operation Twist And Downgraded Economic Forecasts. Hints on QE3 Made – QE Probability Increased. The Key Event: Auctions in Spain

Fed Extended Operation Twist And Downgraded Economic Forecasts. Hints on QE3 Made – QE Probability Increased. The Key Event: Auctions in Spain.

Russian Eurobond market was flat yesterday, mainly due to anticipation of Fed meeting results. Most sovereign and corporate bonds closed unchanged.
The results of the two-day FRS meeting, which closed yesterday, are difficult to assess unambiguously.
As expected, the Fed downgraded forecast for economic growth and inflation while upgrading forecast for jobless rate in 2012. A quite high unemployment rate remains the main reason for concerns.
The FRS has extended Operation Twist programme by $267 billion. The regulator will continue to buy long-term 6-30 year US bonds while selling short-term treasuries with duration up to 3 years.
The most important news for the market is that there have been explicit hints on probable QE3 till year’s end.
We believe that the likelihood of new QE launch by the year-end has considerably increased. In our opinion, new QE3 will be largely pegged to the situation in Europe, which negatively affects the US labour market.

Trading Ideas in the Bond Market
Eurobonds:

Promsvyazbank-14, Promsvyazbank-15
TCS-Bank-14
HCFB-14
Bank of Moscow-15
Renaissance Capital-13
KKB-13, KKB-14

Ruble Bonds:
Strategy Buy & hold:

RSHB-10, ВО-5
Gazprom-13
VTB ВО-5, ВО-7
LUKOIL BO-1, BO-2
Bashneft-3
Gazprom Neft-3, BO-5 and BO-6