Fixed Income Daily: We do not expect a radical change of mood in the (domestic) market this week; the most probable scenario is sideways trading

EXTERNAL DEBT MARKET
US Treasury yields increased considerably last week on a number of
factors. First, inflationary expectations in the US have increased
substantially once more against new record high prices of commodities (oil
and metals), which adds to the risk of further acceleration of already high
inflation in the US. Second, a sharply cheaper USD in the global market
caused less interest of investors in USD-denominated assets, including US
Treasuries. As a result, the 10Y UST yield increased from 4.35% to 4.55%
last week.
Against this background, Russian Eurobonds saw a considerable slump
last week. The Russia-30, having reached 106.750 early last week (a
spread of 180 bp), fell to 103.500-104.00 (a spread of 190 bp) by the
weekend.
Today, the yield of the 10Y UST has already risen to 4.58%, and the
Russia-30 has fallen to 103.250 (a spread of 195 bp).
This week is the last before a US Fed meeting where interest rates are to
be determined. The Fed is expected to increase its key rate again by 25 bp
to 2.75%.
LOCAL DEBT MARKET
The first tier recovered somewhat on Friday in generally dull trading after its
decline on Thursday.
The OFZ 46003 was the leader in turnover among government bonds, up
0.1%, while the majority of other traded issues added 0.05-0.15%. The
yield curve of long government bonds was down 1-5 bp to 7.51-8.29%.
Another benchmark issue with final redemption in 2021 is to be placed at
an auction this week. Most probably, the auction will follow the scenario of
the OFZ 46017 auction, where the MoF gave a considerable premium to
the market.
Trading activity in the Moscow municipal sector was quite low, with most
issues marked up 0.1-0.2%. It is worth mentioning that no large-scale
reinvestment of funds obtained from the redemption of the Moscow-26
either in Moscow municipals or in corporate blue chips has been seen. The
leader of growth was the Moscow-34, up 1.2% on turnover of some RUB
15 mn, whose yield decreased to 1.4% annualized with duration of 0.5
years. The Moscow municipality announced that buyback auctions of the
Moscow-24, -28 and -34 issues would take place on MICEX on March 16,
2005, which caused such a considerable price growth. It should be noted
that the Moscow municipality is quite actively buying back its papers from
the secondary market. Since the beginning of the year, Moscow has bought
back some 1.3 mn papers of the 34-th issue, out of the total amount of 3.9
mn papers issued.
Trading in corporates was thin, with the most liquid issues mixed within +/-
0.1-0.2%.
We do not expect a radical change of mood in the market this week; the
most probable scenario is sideways trading.