Daily Market Monitor: We believe that the Eurobond market, particularly the Russian segment, is technically overbought now

On Wednesday the Rouble bond market seemed to suffer from a
lack of trading ideas against a backdrop of uncertainty about exchangerate
dynamics. Trading in the first echelon was inactive, while the second
echelon of high credit quality, particularly Sun Interbrew, Baltika and
bonds of metal producers enjoyed higher demand. We believe players
will remain restrained from active trading until the uncertainty on the
exchange-rate side resolves itself.
The Russian Eurobond market demonstrated little change despite
significant moves in benchmarks. The announcement by a FOMC
representative of potential changes in the wording of FOMC’s next
statement (reflecting the changes in the body’s assessment of U.S.
economic development) unexpectedly induced growth in the UST. The
traditional benchmark UST’10 yield slipped 6 bps to 3.98%, breaking
through the psychological 4% level. The Emerging markets failed to keep
pace with benchmarks, with the EMBI Russian sovereign spread
increasing 6 bps to 196 bps. We believe that the Eurobond market,
particularly the Russian segment, is technically overbought now, so that
any negative news could provoke major downward correction. At the
same time all expected positive factors are already in place, so there is
no upside potential from this side in our view. We believe that closing
long positions and going short would be the most reasonable tactic now
for the Russian Eurobond market.
Meanwhile, the release of several important sets of U.S. economic figures
is expected today: The December trade balance (deficit expected to be
$57 bln), jobless claim statistics and the January budget statement (a
figure of $10 bln is expected). We believe the actual figures could
significantly influence the Eurobond market through the benchmarks.