Fixed Income Comment: We expect both price and spread levels to remain contained within narrow ranges over the coming period

Trading volumes across Russian eurobonds were extremely dull yesterday as
Russia followed UST marginally higher and subsequently led to the EMBI+ returns
index closing with a slight positive bias. In contrast to the overall EM benchmark
spread measure, which continues to tighten to record levels at 258 bps, the
Russian EMBI+ spread was flat over the day at 220 bps. Activity was confined to
the long end of the curve and trading across both RU28 and RU30 occurred within
very tight price ranges. Indeed, the benchmark RU30 opened at around 1025/8 and
traded within a 1/8 range throughout the day before closing in London at 10211/16.
With UST relatively unchanged the RU30 spread over 10-year UST remained
within a +233 bps to +234 bps range. Similarly, activity across the corporate and
banking sector eurobonds was largely confined to the longer dated more liquid
issues and amid very few trades the Gazprom ‘34 moved higher to reach 1171/8.
In contrast, the Telecoms sector suffered further downward pressures following
both Vimpelcom’s second ‘back tax’ claim and Deutshe Telekom’s partial sale of
its equity stake in MTS. While most credits were marked lower, the Vimpelcom ’09
and MTS ’10 suffered worst and were marked 1.4% and 1.0% down over the day.
Russia is expected to open this morning with RU30 quoted in a 1023/4-7/8 range
(+235 bps to +233 bps over UST) and with the ‘holiday trading’ theme in full swing
we expect both price and spread levels to remain contained within narrow ranges
over the coming period. While President Putin is expected to discuss the issue of
prepayment of Russian external debt to German Chancellor, Gerhard Shroeder,
toady, the upside potential of any bilateral deal being announced appears limited
in current market conditions and is largely priced into current levels. Moreover,
and as stated before any agreement on Paris Club debt will require approval from
all members.