Fixed Income Daily: Today, the market has opened a little higher, as investors have begun covering shorts and have renewed direct purchases of cheaper bonds.

EXTERNAL DEBT MARKET
During the last few days, the Russian Eurobond market has been driven by
only one factor – the “Vimpelcom case”. Investors quite negatively
interpreted tax claims to Vimpelcom, construing them as a new signal of
authorities’ attacks on business. Against this background, Russian
corporate Eurobonds saw quite significant losses, having lost 2-4% during
several days, while the “disgraced” Vimpelcom bonds fell by up to 5-7%.
Meanwhile, Russian Sovereign Eurobonds remained relatively stable but
also shed Ѕ-1%, while their spreads to US Treasuries widened by 15-20 bp
over several days. The US Treasury yields have been in a downtrend
during all this time, however it failed to influence Russian Eurobonds.
Today, the market has opened a little higher, as investors have begun
covering shorts and have renewed direct purchases of cheaper bonds. The
Russia-30 has inched up to 102.375 this morning from 101.750 on Friday.
The quasi-government Gazprom and Alrosa issues manage to perform
better than the broad market. Buying has emerged in considerably cheaper
Vimpelcom Eurobonds.
Today, the market is waiting for the decision of the US Fed on its interest
rates. The FOMC meeting will take place by the evening in Moscow. An
overwhelming majority of experts expects the rate to be increased by
another 25 bp. However, the main investors’ attention is chained to the
formulation of this decision and forecasts concerning the state of the US
economy, as well as the Fed’s interest rate bias.
We still recommend that investors pick the Rus-30 at a spread over 250 bp.
In view of the recent developments, we do not change our view of the
Russian Sovereign Eurobond market and expect the Russia-30 spread to
narrow to 200 bp in early 2005.
LOCAL DEBT MARKET
The market continued falling on Friday, as the majority of liquid issues lost
0.5-1.5%, whilst only several short-dated second- and third-tier issues saw
buying on small volumes. Persistent position liquidation in the stock market
and strengthening of the US dollar continue exerting negative pressure on
the ruble debt market. However, in the absence of supply in the primary
market, a sustained high level of ruble liquidity may prompt cautious buying
in the secondary market of bonds, which have become considerably
cheaper over the last week.
In the government bond sector, the yield curve of long issues increased by
4-5 bp to 7.7%-7.82%. The main turnover was concentrated in the OFZ
46002 and 46003, while other issues were only marked up or down.
In the Moscow municipal sector, the Moscow-31 was the most liquid issue.
Its price fell by 0.7%, while its spread over OFZs widened to 177 bp.
Overall, prices in the sector eased by 0.3-0.8%. The spreads of long
Moscow municipals over OFZs widened by another 5 bp to 34-54 bp.
Because the NDF market efficiency is sustained over an investment
horizon of about 1 year, short and medium-dated Moscow municipals enjoy
relatively stable positions now, as these bonds provide attractive yields for
non-residents in foreign currency. In corporate blue chips, prices eased by
0.2-0.7 %, while other corporates shed up to 1.5%. The market outsiders
remain the Vimpelcom bonds, which see panic selling on the back of tax
claims to the company.