17 September 2018
Core assets showed growth at the foreign grounds on Friday. Yield of the 10Y UST added 3 bps reaching the psychologically important level of 3.0% annually. Russian foreign loans added in price slightly, showing yields reduction in the sovereign segment by 2-3 bps.
Market situation. Core assets showed growth at the foreign grounds on Friday. Yield of the 10Y UST added 3 bps reaching the psychologically important level of 3.0% annually. The stronger stats on the industrial production and the preserving confrontation between the US and China on the trade matters were responsible for that. For August, the volume of the US industrial production grew 0.4% MoM vs the expected 0.3%.
OFZ market was mixed last Friday. The state bonds opened showing buying backed by the demand of risk that preserved at the global grounds. Later on, quite an unexpected decision by the CBR to toughen the monetary conditions has provided for a sell-off at the debt market. Given drove the long-term issues down by approximately 0.3-0.4 pps of the face value. However, the market rebounded back upwards quite fast, going sideways afterwards.
Market situation. Friday, the OFZ market was mixed. The state bonds opened with buying at the back of the demand of risk preserving at the global grounds. Later on, a relatively unexpected decision of the CBR to toughen the monetary conditions has provided for a sell-off at the debt market. Given drove the long-term issues down by approximately 0.3-0.4 pps of the face value. However, the market rebounded back upwards quite fast, going sideways afterwards. Thus, today the long-term end of the sovereign curve slipped approximately 2 bps in yield while the short and mid-term notes showed rates upping by 3-5 bps. The floaters showed more connatural trends. OFZ with a flexible coupon reacted to the decision to build up the rate with a price adding. The best dynamics indicated the 29008 issues having added about 1% at the back of a considerable trade turnover. At large, the market activity reduced significantly on Friday. The daytime turnover was about RUB 22 bn, which was nearly twice lesser than the previous day estimate. The liquidity was distributed non-contiguously between the notes. The highest turnover indicated the short-term series 25083 (YTM 8.26%, +5 bps).
For the week, the local bonds managed to show positive results, recovering 35-45 bps in terms of yield at the middle and far-off segments of the curve and 15-25 bps at the nearest segment. The angle of the curve declined significantly: the spread at 2 to 10Y formed approximately 84 bps, while it was above 105 bps a week ago.
Author: Julianna Lukyanova
CBR upgraded the rate and inflation forecast, promising not to buy currency at the market until the end of the year.
Friday, the Bank of Russia made a decision to upgrade the key rate 25 bps to 7.50% annually. The regulator justified the rate upping mainly be change of the external conditions, indicating the “risks balance shifting towards the inflation-related risks”. Moreover, the CBR upgraded all forecasts on inflation comparing to the previous session held out on July 27 and “extended” the targeted term of the inflation return to the 4% target. The CBR expects inflation to total 3.8-4.2% annually by the end of 2018 (vs the 3.5-4.0% target at the session on July 27). For 2019, the inflation will form 5.0-5.5%, however, previously the regulator forecasted a temporary upping if the 4% target in 2019. Finally, for now the Bank of Russia accounts on the inflation return to 4% in 1H 2020 only, yet at the previous session the regulator expected the growth rates to return to the target price in early 2020.
CBR kept the forecast on the GDP growth until the end of 2018 at 1.5-2.0%, however, it expects a “light restraining impact on the business activity mainly in early 2019” due to the planned upping of VAT. GDP growth rate in 2019 will total 1.2-1.7% according to the targets set by the regulator.
Previously, the regulator indicated that it “will be making decisions on the key rate valuating the inflation risks, dynamics of inflation and development of the economy in comparison with the consensus”, However the CBR indicated in the press release on Friday that it “will be valuating practicability of the further rate upping, acknowledging the inflation and economy dynamics versus the consensus and considering the risks on behalf of the foreign conditions and reaction of the financial markets to them”.
Right after the regulator announced RUBUSD set the new high from early September. Participants overreacted not just because of the official upping of the rate by 25 bps, but due to the CBR promising not to buy currency for the Finance Ministry at the public market up until the end of 2018, and due to the harsh rhetoric of the CBR regarding the inflation risks and the new passage on “expediency of the further upping of the key rate”
Author: Julianna Lukyanova