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April 13, 2005
Alfa Bank Fixed Income Market: In the absence of encouraging news about the course of Russia’s negotiations with the Paris Club, Russian debt will continue to mirror the dynamics of US Treasuries
Description
In the absence of encouraging news about the course of Russia’s negotiations with the Paris Club, Russian debt will continue to mirror the dynamics of US Treasuries. Publication of the minutes from the Fed’s March 22 meeting (April 12), the 5-year US Treasury auction (April 13), and data on US Treasury purchases by foreign investors (April 15) will determine the short term price trend on the global debt market.
April 12, 2005
B&N Bank Fixed Income Daily: Our recommendation remains unchanged: stay long Russian Sovereign Eurobonds
Description
EXTERNAL DEBT MARKET Russian Sovereign Eurobonds closed unchanged yesterday, with the country spread also unchanged. The Russia-30 remained at 104.125, reacting to stable US Treasury prices in the absence of US macroeconomic data. However, Russian corporate Eurobonds saw some selling pressure in the midday on the news of increased tax claims to TNK-BP. Nevertheless, all the issues except the TNK-07, which lost some 1%, saw support soon and closed unchanged from Friday. We agree with the majority of market participants that there is no threat to TNK-BP solvency against the background of tax claims, and that the holders of these bonds have nothing to worry about. However, this would not prevent TNK papers from underperforming the market in the near future. Today, the Russia-30 is up 1/2 % to 104.625 (traded at a spread of 191 bp) following the growth of US Treasuries (the yield of the 10Y UST has decreased to 4.43%). We think that the fact of achievement of the agreement has not been fully priced in by the market of Russian Eurobonds yet. As soon as the agreement is achieved, we anticipate the Russian Eurobond spread to decrease by at least another 15-20 bp in the medium term and receive an impact for further steady reduction in a longer term. We expect the Russia-30 spread to narrow to 175-180 bp by mid-May, and to 150-160 bp by the end of the year. Our recommendation remains unchanged: stay long Russian Sovereign Eurobonds.
VTB Capital Fixed Income Comment: Amid modest volumes, Russian external debt nudged higher yesterday with improving UST prices providing the supporting anchor
Description
Amid modest volumes, Russian external debt nudged higher yesterday with improving UST prices providing the supporting anchor as the Russian EMBI+ index posted gains of 0.12% with the spread tightening 1 bp to 190 bps. At the same time, with Russia continuing to outperform Mexico’s sovereign debt curve, the respective spread briefly traded as tight as +1 bp over Mexico’s sovereign credit curve before closing at +7 bps. A move that conforms to our long held view that Russia’s improving credit fundamentals will substantiate a move through the Mexican curve. Across Russia, the more liquid issues were traded most and the benchmark RU30 traded from an opening level of 1041/8 to a low of 1037/8 before tracking UST upward to close at the day’s high of 1041/2. Although on a spread basis, the move in RU30 resulted in a somewhat stagnant performance with the mid-price RU30 spread over 10-year UST remaining unchanged at around 194 bps over the day. Elsewhere in Russia, the longer dated more liquid ARIES ’14 also improved, up by almost 1 point to 1233/8, supported by favourable comments by senior government officials at yesterday\'s Russian Economic Forum in London regarding the country’s ability to repay its total outstanding Paris Club debt by 2008. We anticipate that as Russia continues to accumulate mass FX reserves and OSF proceeds such comments will become more apparent and thus provide further support for the ARIES related debt. With regards to Russian corporate and banking sector eurobonds, activity was rather subdued with the longer duration credits being marked higher in line with the sovereign curve. Still, the TNK ’07 witnessed some volatility following the announcement that the company had received a revised back tax claim for 2001, up from US$90 million to US$940 million, and despite recovering from early losses the credit underperformed the market. With UST slightly firmer this morning, Russia has traded at similar levels to yesterday’s close with the benchmark bond at 1041/2-9/16 range (+194 bps over UST at mid-price). Despite further domestic newsflow expected, stemming largely from the Russian Economic Forum in London, movements in UST will dominate trading patterns today. That is, the US economic calendar includes the release of the trade balance (February), monthly budget statement (March), ABC Consumer Confidence and latest FOMC minutes. Given the shift in market focus towards the inflation profile, the latter will remain the key event risk, particularly in view of the rising debate among Fed officials concerning the inflation outlook. In our view both Russia and EM debt will remain vulnerable to the minutes including a more hawkish Fed undercurrent and any subsequent sell-off in UST.
Raiffeisen Bank Daily Market Monitor: The Russian Eurobond market continues to watch benchmark dynamics in the absence of significant news on a potential Paris Club deal
Description
Rouble bond dynamics were mixed on a slow Monday for the market. The combination of rouble liquidity below recent record levels (though still high) and uncertainty on the exchange rate side is keeping the market at the previous levels. The news on tax claims for TNK-BP had a negative impact on the rouble bond market. However, the risks seem to have already been priced in. The market should still have enough optimism to outweigh any negative influence. The TNK-5 bond suffered a decline on the day, though the moderate one – falling 0.7%. We believe the market will see little movement in coming days – prices should remain at current level with slow trade. The Russian Eurobond market continues to watch benchmark dynamics in the absence of significant news on a potential Paris Club deal. We believe that the most important events on the benchmark side for Tuesday is the release of the U.S. economic comments (minutes from the recent FOMC meeting) and statistics. These include February’s trade balance, due in the second half of the day (a deficit of $59 bln is expected) with the March budget balance to follow later in the evening (a deficit $69.3 bln is foreseen). Coupled with the economic releases in the coming days, this could reduce current uncertainty on U.S. economic performance and inflation concerns and could introduce new trends to the market.
April 08, 2005
B&N Bank TMK Possible IPO
Description
TMK is the #1 Russian pipe maker and the second largest in the world. TMK is considering an IPO this year. TMK core assets are four pipe making plants: Volzhsk Pipe Works, Sinarsky Pipe Works, Seversky Pipe Works and Tagmet. IAS financials of TMK and its subsidiaries have not been published yet. We have constructed a rough model to value TMK subsidiaries based on the holding’s implied value. Since TMK subs do not have significant inter-group operations, sales under RAS could be a good estimate of each plant’s share in total TMK sales and thus value. The share of each sub in output could also be used to infer its stake in a future consolidated TMK.
B&N Bank Fixed Income Daily: Russian Eurobonds were rather volatile yesterday, following in the footsteps of the US Treasury market and maintaining stable low spreads over UST
Description
EXTERNAL DEBT MARKET Russian Eurobonds were rather volatile yesterday, following in the footsteps of the US Treasury market and maintaining stable low spreads over UST. A decrease in the 10Y UST yield to 4.41% over the first half of the day pulled the Russia-30 up to 104.625-104.750. Its spread held around 193-195 bp. Russian Eurobonds saw further plays on the positive news concerning the Paris Club. However, the yield of the 10Y UST increased considerably in the evening (to 4.48%) following a noticeable oil price decline and stock market growth. Simultaneously, high-ranking Fed officials made a number of statements confirming steady growth of the US economy and still lingering threat of inflation. As a result, the Russia-30 fell to 104.125 by the market close in London, maintaining its spread of 195 bp. This morning, the Russia-30 has remained at 104.125 at the unchanged spread of 195 bp. Very few US economic data are to be published over the next two weeks, and therefore volatility in the UST market is likely to be low during this period. This should allow emerging market bonds to strengthen on some spread narrowing to US Treasuries. We remain moderately optimistic and believe that this volatility is a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon, and should narrow to 150 bp in the future. Excellent fundamental and debt parameters of the country should outweigh all risks, and investors should renew their active purchases of Russian Eurobonds soon. We do not change our target price of the Russia-30 as of the year end, which is about 105.125, and its spread about 150 bp. Therefore, we recommend buying the Russia-30 at the current levels. LOCAL DEBT MARKET The market remained on the rise yesterday, with most issues up 0.1-0.5% amid increased trading activity. Government bonds added 0.1-0.3%, while the OFZ 46018 saw the most significant growth, having completely regained the auction premium. The yield curve of long OFZs decreased for the day to the already usual levels of 7.53-8.73%. Buyers prevailed in the sector of Moscow municipals; the leader in turnover was the new Moscow-36 issue, whose yield decreased to 7.63%. No new auctions of Moscow municipals are expected until September, which renders quite good support for the papers of the entire sector. In sub-Sovereigns, the leaders remain the Moscow Region-4 and - 5, whose yields have become practically equal: 9.04% and 9.05%. Trading activity has increased in the corporate sector, with the majority of papers up 0.2-0.5% and some second-tier issuers up as much as 0.8%. It is worth noting that the Central Bank may begin actual crediting on the security of AIZhK bonds starting next week, which should completely erase any spread between the bonds of AIZhK and Moscow. The only impediment to that is the fact that the most part of the papers have already settled down in the portfolios of large investors, and liquidity of these bonds is practically completely gone. Today, the markets of base assets (currencies and Eurobonds) are not so favorable for the ruble debt market, which may cause price consolidation.
Raiffeisen Bank Daily Market Monitor: Russia’s Eurobond market was also showing confidence on Thursday as news agencies reported that Germany had agreed to the early redemption of Russia’s Paris Club debt on par
Description
The rouble bond market remained upbeat on Thursday, although it looks unlikely that the mood will survive. Uncertainty on the exchange rate side and relatively low yields leaves little room for upward movement. We expect consolidation in the coming days, most likely on Friday. In the meantime, the Central Bank placed its new OBR-3 bonds. Rub 100 bln were presented for auction, of which Rub 73.5 bln were placed at an average yield of 1.62%, with a put option in a week’s time (April 14). The placement looks like a technical move – the bonds will be registered and bought back to become ready for secondary placement (allowing the Central Bank to obtain another short-term instrument). OBR-3 will mature in Sept ’09 and the placement will have a number of put options, the first is scheduled for Dec ’05, making the bonds effectively an 8-months instrument. Russia’s Eurobond market was also showing confidence on Thursday as news agencies reported that Germany had agreed to the early redemption of Russia’s Paris Club debt on par, which increase the likelihood of a deal with all of the club’s members. At the same time, U.S. treasuries fell after a comment by Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, on U.S. economic statistics in the evening. We believe this could have an adverse impact on the Russian papers on Friday. The potential for a contraction of Russian spreads following a Paris Club deal still exists in the mid-term, but we do not see significant upside beyond this.
April 07, 2005
Ukrsotsbank Ukraine: Weekly review of financial markets
Description
VAT bonds\' yield remains at record low – 4% Ukraine 10Y Eurobonds\' yield spread last week notched down below 200- points mark as Ukrainian Eurobonds yield declined
Raiffeisen Bank Daily Market Monitor: Four significant auctions took place Wednesday
Description
Although optimism was discernable in rouble bond trade on Wednesday, significant uncertainty remains. The positives of possible rouble appreciation and relatively high rouble liquidity continue to be balanced by the risk of interest rate hikes. Four significant auctions took place Wednesday. Firstly, the Finance Ministry placed two issues – OFZ 25028 maturing in Apr ’08 (rub 2 bln with a 7.4% yield) and OFZ 46018 maturing in Nov ’21 (Rub 2 bln with an 8.8% yield). The ministry continues to place its bonds with a premium for the market, which gradually increases OFZ yields. While we do not see a significant threat on that side in the short-term, the benchmark yield increase could have an adverse impact on the market in the mid-term. Secondly, Moscow City borrowed rub 5.9 bln in two issues: Moscow-36 maturing in Dec’08 (rub 3.9 with a 7.62% yield) and Moscow-42 maturing in Aug’07 (Rub 2 bln with a 7.14% yield). The first issue was placed at the minimal premium to the equivalent OFZ, demonstrating healthy appetites for Moscow City bonds, likely a hold-over from the previous day’s auction of Moscow Region bonds. The local Eurobond market demonstrated healthy increases on Wednesday. The sovereign spread contracted by as much as 15 bps to hit 192 bps, while benchmark UST bonds also saw positive movement (the UST’10 yield contracted 3 bps to 4.44%). The main cause of the move was a positive speech by U.S. Federal Reserve chairman Alan Greenspan, decreasing concerns of aggressive U.S. key interest rate hikes by the Fed. U.S. economic releases due Thursday (initial jobless claims, consumer credit and wholesale inventories) should have a significant effect (through the benchmarks) either confirming or crushing Wednesday’s optimism.
Renaissance Capital MegaFon-3 Rouble Bond Placement: Credit Mispricing Gone, But Tightening Still Likely
Description
* The three-year, RUB3 billion MegaFon-3 bond will be placed in the second half of April. * The rouble debt market has corrected earlier mispricing of MegaFon\'s b, c, d, f, h credit risk. * Based on a comparative analysis with MegaFon’s traded bonds, the fair yield for the planned MegaFon-3 bond is 9.67-9.92% per annum, which corresponds to a coupon rate of 9.45-9.69%. These are not the expected parameters at the date of placement, but those considered being fair as of the current date on the secondary market. * The fair yield derived for the MegaFon-3 bond using the eurobond market is 50-70 basis points (bps) lower. * The potential for further spread tightening lies in improvements to MegaFon’s credit quality to close the gap on MTS and VIP.
April 06, 2005
Raiffeisen Bank Daily Market Monitor: The Russian Eurobond market found strong resistance on Tuesday following global emerging markets sentiment
Description
We expect little movement on the Rouble bond market Wednesday due to an uncertain exchange rate backdrop. Potential rouble appreciation in the near-term could become a positive factor; but the risk from increasing global interest rates would likely cancel this out. Primary placements could present some interesting opportunities in such an environment. The largest borrower in the market, Moscow City, plans two actions of its bonds for Wednesday. A Rub 3.9 bln of issue 36 maturing in December 2008 and a Rub 2 bln of issue 42 maturing in August 2007 are to be auctioned. The market expects an average yield of 7.79% for the first issue and 7.51% for the second, according to a Reuter’s poll. Meanwhile, the Moscow Region successfully placed its 5th issue for rub 12 bln on Tuesday. The issue has an amortisation structure (25% in Oct. ‘05, 25% in Oct. ‘07 and 50% in March ‘10) and was placed at 9.2%. Despite some uncertainty in the market and significant issue volume, demand proved to be double supply. The Russian Eurobond market found strong resistance on Tuesday following global emerging markets sentiment. However, fears of inflation in the United States could provoke a further decline across the board. Meanwhile, the Russian segment could benefit from a possible deal with the Paris Club (see highlights). While we see that event as fundamentally priced in and a significant spread to benchmark reduction as unlikely in the long-term, the announcement could become a significant plus for Russian assets.
April 05, 2005
Alfa Bank Non-Government Ruble Bond Market Weekly: We expect further yield growth on TNK-5 bonds
Description
Investment Summary 1. Blue chips. We expect further yield growth on TNK-5 bonds. After some price decline last week TNK-5 is still trading with 70-bpt discount to Gazprom-3 with comparable duration (1.5 years vs. 1.7 years, respectively). 2. 2nd tier We see price growth potential for MECHEL-SG: given the same duration with MECHEL-Uglemet (1.1 years) 30 premium in yield seems unjustified. There are price distortions within AMTEL bond issues: AMTEL with a duration 0.6 years is trading at 11% p.a., while Amtelshinprom with a duration 0.7 years offers 10.3% p.a. 3. Primary Placements Moscow-42 is the most illiquid Moscow municipal issue – total trading volume over past 2 months totalled R33 mln. Considering the strategic investor holding a major part of the loan, we think that potential liquidity constraints will limit interest at the auction. Slightly more interesting for investors will be Moscow-36. The issue’s duration is medium term (with settlement in December 2008), and, considering the large volume of municipal issue placements, can be placed with a slight premium to Moscow’s yield curve. At the same time, the Moscow government has sufficient financial potential and undertakes weekly operations to redeem short-term bonds on the secondary market. As such, a premium higher than 10 bpts over the secondary trading seems unlikely. Investment Summary
Alfa Bank Fixed Income Market Weekly: No events with significant implications for the debt market are planned this week, which should therefore see low activity
Description
No events with significant implications for the debt market are planned this week, which should therefore see low activity. However, on the threshold of a series of important events (April 12-13), some investors will likely prefer to reduce their long positions on bonds, moving yields on 10- year US Treasuries to 4.55% p.a.
B&N Bank Fixed Income Daily: In the absence of US economic statistics, the global bond market has entered a period of low activity
Description
EXTERNAL DEBT MARKET In the absence of US economic statistics, the global bond market has entered a period of low activity. The majority of investors have executed all the necessary market operations on Friday, when important US economic statistics were published, and the remaining investor interest in the market is minimal. As a result, the yield of the 10Y UST inched up 1 bp to 4.47%, and emerging bond markets eased a little on spread widening to UST. The Russia-30 traded at some 102.500 intraday yesterday but retreated to 102.250-102.375 (a spread of 220 bp) by the end of the day. Russian corporate Eurobonds followed Sovereign issues, shedding ј% on extremely low turnover. Very few US economic statistics are to be published over the next two weeks, and therefore volatility in the UST market is likely to be low during this period. This should allow emerging market bonds to strengthen on some spread narrowing to US Treasuries. We remain moderately optimistic and believe that this weakness presents a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon, and should narrow to 150 bp in the future. Excellent fundamental and debt parameters of the country should outweigh all risks, and investors should renew their active purchases of Russian Eurobonds soon. We do not change our target price of the Russia-30 as of the year end, which is about 105.125, and its spread about 150 bp. Therefore, we recommend buying the Russia-30 at the current levels. LOCAL DEBT MARKET Non-aggressive selling dominated in the market on Monday, with most firsttier bonds down 0.1-0.3%. The long OFZ yield curve increased by 3-5 bp to 7.58-8.73% in relatively active trading. Turnover in the Moscow municipal sector was minimal, with most issues marked down 0.2-0.3%. Corporates were mostly down, with selective demand seen only in second- and thirdtier bonds. Among sub-Sovereign papers, the leader in turnover was the Moscow Region-4 – the benchmark for today’s auction of the Moscow Region-5. The Moscow Region-4 yield was 9.14% annualized at the market close yesterday, but has already fallen to 9.04% this morning. A large volume of the 5-th issue (RUB 12 bn), its unusual structure (the first 25% amortization is to take place on the first coupon payment date), and unfavorable domestic currency market performance (with the US dollar having already approached 28 RUB/USD and traded at 27.94/27.95 RUB/USD this morning) suggest a premium to the market.
Raiffeisen Bank Daily Market Monitor: The Eurobond market experienced minor changes, following benchmarks
Description
Monday brought little movement on the fixed-income front, aside from some information on two upcoming domestic placements. On Tuesday, the Moscow Region will place Rub 12 bln in 5-year bonds, featuring 10% semi-annual coupons and two interim amortizations of a quarter of the principal each (in October 2005 and October 2007). S&P awarded the bonds an ruAA- (rus) rating on the national scale, noting that the debt structure of the region will improve after the placement. On Wednesday, the Finance Ministry is to conduct an additional placement of OFZ 25058 and OFZ 46018, worth about Rub 2 bln each. The Eurobond market experienced minor changes, following benchmarks: The UST’10 yield gaining an insignificant 1 bps, while the Russia’30 yield grew by 6 bps to 6.64%. The EMBI+ Rus spread expanded by 5 bps to reach 214 bps.
April 04, 2005
B&N Bank MDM Fixed Income Daily
Description
Fixed Income Daily: The US Treasury and emerging bond markets experienced extremely high volatility on Friday EXTERNAL DEBT MARKET The US Treasury and emerging bond markets experienced extremely high volatility on Friday against the backdrop of extremely contradictory US economic data. The yield of the 10Y UST held around 4.48% ahead of the data release. The Russia-30 inched up, though, and reached 102.875 (a spread of 205 bp) ahead of the US statistics publication. First, payrolls appeared twice below expectations, signaling a considerable slowdown in employment and, respectively, less inflationary pressure. The yield of the 10Y UST instantly fell to 4.40%, and the Russia-30 traded at 104.00. However, as soon as in an hour, the ISM Price Paid (an indicator of inflation) was published considerably above expectations, which prompted a sharp fall of bonds across the broad market. The yield of the 10Y UST increased to 4.54%, and the Russia-30 fell to 102.500. In the end, the yield of the 10Y UST stabilized around 4.47% by the market close, and the Russia-30 remained around 102.750. Today, the market has remained near its Friday’s closing levels. We remain moderately optimistic and believe that this volatility is a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon, and should narrow to 150 bp in the future. Excellent fundamental and debt parameters of the country should outweigh all risks, and investors should renew their active purchases of Russian Eurobonds soon. We do not change our target price of the Russia-30 as of the year end, which is about 105.125, and its spread about 150 bp. Therefore, we recommend buying the Russia-30 at the current levels. LOCAL DEBT MARKET The market was mostly in an uptrend on Monday, with most first-tier issues up 0.1-0.3% on average turnover. The yield curve of long OFZs decreased by 3 bp to 7.57-8.7%. Trading in the Moscow municipal sector was rather dull; the leader in turnover was the long-maturity Moscow-39, whose yield decreased to 8.31% and spread over OFZs narrowed by 8 bp to 27 bp. The leader in turnover among corporate blue chips was the Russian Railways-3, which saw a major transaction for RUB 300 mn in the negotiated transaction regime. Trading in the rest of the issues was choppy. Most second- and third-tier issues added 0.2-0.3%. The Eurobond market is clearly stronger (at least, no considerable selling is seen), and the domestic currency market remains relatively stable. Therefore, we do not expect many auctions this week to put significant negative pressure on the secondary market. The main intrigue in the primary market seems to be RUB 12 bn placement in the Moscow Region amortized bonds, as it is quite a considerable volume for the market.
Raiffeisen Bank Daily Market Monitor: We believe that this, along with rising free rouble liquidity should turn out in favour for papers today, though significant moves are unlikely.
Description
The rouble bond market was relatively inactive Friday, with investors assumably waiting for a clarification of exchange rate trends. We believe that this, along with rising free rouble liquidity should turn out in favour for papers today, though significant moves are unlikely. Incidentally, talking of long-term trends, bulging government expenditures envisaged by most macroeconomic scenarios now being discussed by policymakers point towards more potential for a larger domestic debt market in the years ahead. Given the stated goal of reducing Russia’s external debt, the federal government’s net domestic borrowing could reach a few hundred billion roubles annually. While naturally inflating yields somewhat, this could also provide the GKO/OFZ segment with much-needed liquidity, and other segments with benchmarks. After expectations of the U.S. interest rate trends were revised somewhat Friday evening, emerging debt should feel relatively comfortable this week. However, Fed chairman Alan Greenspan will have a chance to guide expectations three times this week, talking at conferences Tuesday, Wednesday, and Friday. Meanwhile, last Friday the Russian Eurobond market saw little change, following the benchmarks. Russia’30 yield declined 4 bps to 6.58%. The EMBI+ sovereign spread expanded by 2 bps and reached 209 bps.
April 01, 2005
B&N Bank Fixed Income Daily: Against this background, emerging market Eurobonds appreciated noticeably yesterday. The Russia-30 added 1% to 102.8125, while is spread holds steadily at 210 bp
Description
EXTERNAL DEBT MARKET The US economic data published yesterday was favorable enough for the bond market. Initial jobless claims were considerably above expectations at 350K instead of 320K forecast, and have been increasing for already a few weeks. Industry orders were also considerably below expectations at +0.2% instead of +0.5% expected. At the same time, PCE deflator (a measure of inflation) was exactly as expected. All this noticeably cooled the exaggerated expectations concerning the pace of future interest rates increases by the Fed, which prompted a sharp decline of US Treasury yields. The yield of the 10Y UST fell from 4.56% to 4.49% after the data release. Against this background, emerging market Eurobonds appreciated noticeably yesterday. The Russia-30 added 1% to 102.8125, while is spread holds steadily at 210 bp. Russian corporate Eurobonds gained some 0.375-0.5% yesterday. We remain moderately optimistic and believe that this volatility is a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon, and should narrow to 150 bp in the future. Excellent fundamental and debt parameters of the country should outweigh all risks, and investors should renew their active purchases of Russian Eurobonds soon. We do not change our target price of the Russia-30 as of the year end, which is about 105.125, and its spread about 150 bp. Therefore, we recommend buying the Russia-30 at the current levels. LOCAL DEBT MARKET Non-aggressive buying prevailed in the market yesterday against the background of increased trading activity. The government bond sector was mixed, but the yield curve of long issues insignificantly decreased to 7.58- 8.73% for the day. Among Moscow municipals, the short-dated Moscow-24 was the leader in turnover (RUB 726 mn), most probably, continued to be bought back by the Moscow municipality. Investor activity in other issues was low, with most of them marked up 0.1-0.2%. Corporate blue chips were practically unchanged; only the Federal Grid Company and the Russian Railways-3 traded rather actively. Selective buying continues in the second tier, but no frontal growth of the sector is seen yet. The situation in the third tier is approximately the same. The market remains suspended, as investors are waiting for the signals from the base markets, i.e. the forex and Eurobond markets. The market itself is on quite a positive note, while the main restraining factor remains the absence of clear direction on the markets of base assets.
VTB Capital Fixed Income Comment: Russian eurobonds improved yesterday, supported by the stronger UST market
Description
Russian eurobonds improved yesterday, supported by the stronger UST market and consequently the Russian EMBI+ index posted an increase of over 0.8% with the spread contracting 6 bps to 206 bps. The move itself outperformed the wider EMBI+ benchmark and the Russian spread over Mexico’s sovereign curve narrowed marginally to 27 bps. Amid modest volumes the benchmark RU30 traded higher throughout the day from an opening level of 1021/8 to close at 10213/16 and subsequently resulted in the spread over 10-year UST yields tightening to 208 bps. Elsewhere in Russia, both the MinFin and ARIES curves were relatively inactive with prices being marked higher in line with the sovereign curve. Despite the considerably stronger than expected Chicago PMI the overall outcome of yesterday’s US economic data was largely price supportive and 10- year UST yields retraced below the 4.50% threshold. From this viewpoint, we expect that today’s all-important NFP release will also be relatively neutral and thus a continuation of spread tightening across Russian debt is anticipated. That is, we expect a below consensus outcome of around 210k and thus provide renewed impetus for a further bout of short-covering.
March 30, 2005
Ukrsotsbank Ukraine: Weekly review of financial markets
Description
Effective ask yield of VAT bonds\' of both series declined to record low 4.01% and bid yield of both series ended week at 6.01% Fed FOMC raised its benchmark rate by 0.25% to 2.75%. This had negative effect on quotations of Ukrainian Eurobonds – Ukraine 10Y Eurobonds\' yield spread rose to two-month high – 210.2 b.p.
B&N Bank Fixed Income Daily: We remain moderately optimistic and believe that this volatility is a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon
Description
EXTERNAL DEBT MARKET Against the backdrop of yesterday’s positive news concerning the development of negotiations between Russia and the Paris Club (see the News) and some decrease in US Treasury yields, Russian Eurobonds continued gradually recovering after their sell-off last week. The slightly less than expected US consumer confidence data published yesterday caused the yield of the 10Y UST to give up 4 bp to 4.58%. The Russia-30 increased to 101.375-101.500 yesterday (its spread was 215 bp). However, investors still exercise caution, which has resulted in further reduction of Russian corporate Eurobond prices. Today, the yield of the 10Y UST has decreased a bit more (to 4.57%), and the Russia-30 has already grown to 101.8125-101.875. Its spread has widened to 210 bp. Today and the day after tomorrow, very important US economic data are due out, which should largely define the global bond market trends for the next few weeks. Today, the US GDP and GDP deflator are to be published, and the US unemployment and labor market (payrolls) data are to be made known on Friday. We remain moderately optimistic and believe that this volatility is a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon, and should narrow to 150 bp in the future. Excellent fundamental and debt parameters of the country should outweigh all risks, and investors should renew their active purchases of Russian Eurobonds soon. We do not change our target price of the Russia-30 as of the year end, which is about 105.125, and its spread about 150 bp. Therefore, we recommend buying the Russia-30 at the current levels. LOCAL DEBT MARKET The secondary market was mostly mixed yesterday on average turnover. Investors’ attention was partially diverted to the primary market. The most successful auction should be named the TMK-2 bond placement at a yield below 11% to a put option in 2 years, thanks to quite healthy investor demand against the backdrop of a falling market. Despite a correction in the external forex market, investors still continue to bet against the ruble, which largely explains higher inter-bank rates. The recent US economic data have somewhat calmed down the market of external debt. Nevertheless, we do not expect any trend to form in the ruble debt market, whose correlation with the base markets has considerably increased recently, until the essential US GDP and labor market data are released and the forex and Eurobond markets manifest their reaction. In the government bond sector, the leader in turnover was the OFZ 46003, which inched up yesterday. The yield curve of long issues remained at 7.55-8.75%. Among Moscow municipals, the Moscow-35 saw the most turnover, having added 0.2%. Other issues were mixed. Corporate blue chips were practically unchanged. Selective buying was noted in the second tier, with the Wimm-Bill-Dann among the leaders of growth. There is no more potential for any WBD price increase; however, the issue remains a quite good defensive asset in the falling market with advancing inflation.
VTB Capital Fixed Income Comment: Despite early morning selling into strength, Russian eurobonds recovered in late trading
Description
Despite early morning selling into strength, Russian eurobonds recovered in late trading following the firming in UST and closed marginally higher over the day. As a result of such moves, Russia’s EMBI+ index posted a 0.19% gain with the spread widening by 2 bps to 211 bps. Nevertheless, the move lagged the overall EM debt benchmark performance and with Mexican external debt also outperforming, the Russian spread over Mexico’s sovereign curve erased the previous day’s gains and widened to 25 bps. Volumes were somewhat modest and trading was largely confined to the more liquid issues, namely RU28 and RU30. The latter opened at a 1011/8 and traded lower to 1003/4 before a bout of short-covering across UST markets took hold, largely in response to the weaker consumer confidence data, and the benchmark bond recovered to close in New York at 1013/8. Indeed, with 10-year UST yields declining from 4.642% to 4.575% the move in RU30 led to a modest compression in spread levels, with the RU30 spread tightening from 219 bps at the day’s low to 216 bps at close. Although RU28 also traded higher over the day, the move failed to keep pace with the benchmark bond and the spread over RU30 widened from 44 bps at opening levels to 47 bps. Elsewhere in Russia, the ARIES curve shrugged off the ongoing noise regarding Russia’s Paris Club repayment negotiations and the more liquid ’14 issue traded higher from 1183/4 to 1191/8. While both corporate and banking sector eurobonds were relatively inactive, certain issues were better bid as market participants continue to look for value across the higher yielding credits. Russia has opened this morning on a firmer tone with the benchmark RU30 trading in 1011/2-1015/8 range (+215 bps to +214 bps over UST) and we expect this current momentum to result in further spread tightening over the near-term. While the main market focus remains entrenched on tomorrow’s PCE deflator and Friday’s NFP data, the key data highlights today include mortgage applications, personal consumption, final Q4 GDP estimates and price deflator. At the same time, the US$24 billion auction of 2-year UST notes will also be closely watched for insight into the level of both domestic and foreign risk appetite towards UST paper, particular given the sharp rise in yields at the short end of the curve in recent months.
Raiffeisen Bank Daily Market Monitor: Russian external debt outperformed emerging-market debt Tuesday as investors seemed to recognize Russia’s relatively defensive stance
Description
Domestic debt will continue to watch FX market dynamics Wednesday, where the tendency towards rouble depreciation against the dollar has slowed following the widespread liquidation of short rouble positions on Tuesday. The Central Bank’s exchange rate policy is the key component to watch, although, given its unpredictability, the best policy for rouble bond investors is to remain on the sidelines until the situation surrounding exchange-rate policy is clarified. Moreover, the end of the month (and quarter) could bring a decline in domestic liquidity — overnight rates are now at 1.5-1.75%. The large number of primary placements scheduled for next week (Rub 20 bln worth of new bonds) should put additional pressure on the secondary market. Russian external debt outperformed emerging-market debt Tuesday as investors seemed to recognize Russia’s relatively defensive stance on the back of its strong budget surplus and the fact it has little need to seek refinancing. Russia’s intention to repay Paris Club debt has become more pronounced of late — a development likely to help the Russian sovereign spread to tighten by 15-20 bps. Yet, expectations of more aggressive rate hikes from the Federal Reserve have turned investors remarkably risk-averse in the past two weeks. All market attention should be on important U.S. data releases at the end of the week — expect rather sluggish trading while investors prepare for their next wave of euphoria or doom. The Russia’30 climbed to 101.063% Tuesday, while its yield remained almost unchanged (down 5 bps). The sovereign spread, meanwhile, expanded by an insignificant 2 bps to 212 bps.
March 29, 2005
B&N Bank Fixed Income Daily: Russian Eurobonds renewed their lows since November 2004 last week after a new interest rate hike by the US Fed
Description
EXTERNAL DEBT MARKET Russian Eurobonds renewed their lows since November 2004 last week after a new interest rate hike by the US Fed, driven by the expectations of faster interest rate increases in response to higher inflation. Against this background, the 10Y UST yield increased noticeably to 4.60-4.68%. The Russia-30 was as low as 100.375 (traded at a spread of 220 bp) in the middle of the week. Nevertheless, the benchmark bond recovered to 101.500 (a spread of some 210 bp) by the weekend. Russian corporate Eurobonds also fell considerably, with their yield spreads over Sovereigns widened by 10-20 bp over a week and 30-50 bp over a month. The data that are very important for the US Treasury market and for the Fed Funds rate expectations are due out this week. In particular, the US GDP and GDP deflator figures are to be published on 30 March, and, most importantly, the number of new jobs in the US is to be made public on April 1. If the data go above the projected levels, the yield of the 10Y UST may quite quickly rise to the last year’s high of 4.80-4.85%. Otherwise, the yield of the 10Y UST will tend to 4.40% At yesterday’s market open in North America, the Russia-30 fell to 100.500 (the spread was above 220 bp). Today, the price has recovered to 101.00- 101.375 (the spread is 210 bp). Apparently, the recent negative developments in the Russian Eurobond market have been fueled by not the US Treasury market alone but as well by controversial information from the negotiations between Russia and the Paris Club. The demand of Germany to pay a premium of 5-10% at early debt redemption may seriously complicate the negotiations. The absence of a compromise is negatively treated by investors and results in the widening of the country spread. We believe that the transaction between Russia and the Paris Club will take place in any case, as it is beneficial to both parties. The only issue that remains doubtful, in our opinion, is the time when an agreement may be achieved, but the transaction may probably be completed in 2005. Therefore, the transaction would positively affect the market of Russian Eurobonds, the question being – when. We remain moderately optimistic and believe that this volatility is a good opportunity to buy. We believe that the spread of the Russia-30 should return below 200 bp quite soon, and should narrow to 150 bp in the future. Excellent fundamental and debt parameters of the country should outweigh all risks, and investors should renew their active purchases of Russian Eurobonds soon. We do not change our target price of the Russia-30 as of the year end, which is about 105.125, and its spread about 150 bp. Therefore, we recommend buying the Russia-30 at the current levels. LOCAL DEBT MARKET Selling prevailed in the market yesterday, as a consequence of USD growth and persisting tension in the Eurobond market. Also, inter-bank overnight rates are unusually high at 1-2%. Most probably, the increase in inter-bank rates is largely due to the changing mood of players in the currency market rather than any real shortage of rubles in the banking system. The voices of pessimists in the Eurobond and currency markets sound yet stronger, which results in persisting selling in the market of ruble bonds, where investors have been lacking distinct ideas for already quite a long time. It should be noted that the current situation practically completely follows the market pattern of 2004. In late 1Q04, the expectations of global interest rate increases built up, which caused USD growth and entailed a collapse in the Eurobond market. This then resulted in rather fast outflow of “hot” foreign capital and shrinkage of ruble liquidity, giving rise to higher yields on ruble-denominated papers. The situation now is practically the same, but there is one (and the most important) difference. At present, the level of ruble liquidity is considerably higher (2-3 times higher than a year ago), whilst the measures of the Central Bank undertaken to stabilize the banking system allow to argue that a considerable portion of free rubles is of Russian origin. Even if non-residents withdraw their funds from the ruble bond market, essential support to the market can be already rendered by Russian investors who lack opportunities to withdraw their funds. Nevertheless, rate increases are inevitable in the ruble debt market in the long-term prospect.
Alfa Bank Fixed Income Market Weekly: Bonds will likely consolidate at their current levels this week
Description
Bonds will likely consolidate at their current levels this week. Volatility will increase on the global debt market in reaction to the results of the placement of 2-year US Treasuries (March 30) and the publication of the PCE deflator (March 31).
VTB Capital Fixed Income Comment: Both Russian and EM debt suffered yesterday as UST prices resumed its recent downward path, albeit in the absence of any data driven event
Description
Following Friday’s closure of US and European markets, both Russian and EM debt suffered yesterday as UST prices resumed its recent downward path, albeit in the absence of any data driven event. As a result of this move, Russia’s EMBI+ index lost 0.2% with the spread unchanged at 209 bps, its widest level since end-January. Still, the move itself lagged the sell-off across other benchmark EM credits, namely Brazil and Mexico, and as such, the Russian spread over Mexico’s sovereign curve compressed further to 19 bps and at this level remains only 3 bps wide of its tightest point to date (achieved in the aftermath of Moody’s Baa3 upgrade in October 2003). Despite UST markets remaining active yesterday, trading across Russia’s sovereign curve was relatively thin and the price moves in the benchmark bond clearly reflected this illiquid status. That is, RU30 traded lower from 1011/2 on the bid side in Moscow time to 1009/16 in New York, at which the spread over 10-year UST reached the widest point in this current correction period, at 220 bps. With London and European open today, Russia opened on a firmer tone and the benchmark bond has since traded in a 1007/8-1011/8 range (+218 bps to +215 bps over UST), albeit with the pattern of trading being characterised by selling into strength. Moreover, reports suggesting that a senior German government official has called on Russia to undertake a sizeable premium on its proposed early repayment of Paris Club debt may lead to selling pressures across the ARIES curve. Once again, with ongoing risk aversion towards both EM and global fixed income the US economic data calendar and subsequent movements in UST will dominate the general tone for EM debt this week. While the key data highlights include consumer confidence (today), Q4 final GDP estimate (Wednesday), personal income, expenditure, jobless claims, Chicago PMI (Thursday) and ISM survey (Friday), the main focus will remain on the all important NFP data release and associated labour market indicators. At the same time, in view of last week’s concerns regarding mounting inflationary pressures, particular attention will also be given to the GDP and PCE price deflator releases, with the latter remaining Greenspan’s preferred measure.
Raiffeisen Bank Daily Market Monitor: Upcoming economic releases from the United States are of particular importance as they should build expectations
Description
The rouble bond market felt the affects of Monday’s rouble depreciation, with a correction across the board. We do not, however, expect the correction to be deep as the yields are already relatively high (anyone who wanted to unload their portfolios had time to do so). In the meantime, significant uncertainty on the interest rate side makes long papers too risky now. Participation in primary placements looks like a more profitable strategy in the short-term. The Eurobond market was dormant on Monday due to holidays in the West. However trade is likely to become more active in coming days. We see the significant correlation between Russian Eurobond prices and benchmark dynamics persisting in coming days. After significant recent increases in global interest rates following the U.S. Federal Reserve comment on the U.S. economy, the market is in need of facts to confirm U.S. interest rate plans (and thus their likely effects on emerging markets). Upcoming economic releases from the United States are of particular importance as they should build expectations. The release of U.S. consumer confidence index (expected at 103 in March) is scheduled for Tuesday, while the more important figures are expected later. Wednesday will see U.S. annualized GDP, GDP price deflator and personal consumption figures, with personal income, spending and jobless statistics due Thursday.
March 28, 2005
Alfa Bank Non-Government Ruble Bond Market
Description
Investment Summary 1. Blue chips. We think that TNK-5 bonds are somewhat overvalued compared to Gazprom-3 issue. TNK-5 offer 6.6% p.a. to 1.5-year maturity, while Gazprom-3 is trading at 7.3% p.a. to 1.7-year maturity. 2. Metallurgy After the start of secondary trading Svobodny Sokol (metallurgy) gained 2.8% but still has price growth potential. The issue offers 40-60 bpts premium to the secondary market, which is likely to be offset in the short-term. 3. Primary Placements At the beginning of April a number of large-scale municipal issues will be offered to investors. In particular, it will be Moscow Region bonds for RUR12 bln – the largest placement in the history of nongovernment debt market. We expect this issue to be sold within a day and impressive demand on the part of investors will likely provide the auction yield to be close to the secondary market rates. Investment Summary
Raiffeisen Bank Daily Market Monitor: The rouble bond market emained muted on Friday
Description
The Facing uncertainty in both interest and exchange rate dynamics, the rouble bond market remained muted on Friday — although high rouble liquidity acted to support Russian papers. With these factors likely to remain in play all week, the primary market should offer the most opportunities to investors. Several auctions are scheduled this week – PIT investment is to place its second bond issue for Rub 1.5 bln on Monday, while three issues – Incom-finance (Rub 1.5 bln), TMK-2 (Rub 3 bln) and Salavatsteclo (Rub 750 mln) are scheduled for Tuesday. However, significant supply in the coming month (Moscow city plans to place Rub 6 bln on April 6, while the Moscow region plans a Rub 12 bln issue a day before) could bring risk for the primary market as well. Meanwhile, Vneshtorgbank executed a put option on its VTB-4 bond. According to the company, Rub 3 bln of Rub 5 bln was bought back as investors considered the proposed rate for its next coupon of 5.6% as too low in the current environment. The Russian Eurobond market saw little change on Friday due to the public holiday on Western markets — and Monday is likely to remain muted. We expect local activity to recover tomorrow, on the heels of the market’s Western peers as Russian Eurobonds are likely to continue to follow U.S. Treasury dynamics. We see the latter following Thursday’s statistics on U.S. jobless claims, personal income and factory orders.
March 25, 2005
Raiffeisen Bank Daily Market Monitor: We don’t believe foreign investors are likely to start increasing their rouble bond positions soon
Description
The rouble bond market remained uncertain on Thursday, as the negative influence from growing global interest rates and rouble weakening against the dollar were finally outweighed by significant purchases from large local players. However, we don’t believe foreign investors are likely to start increasing their rouble bond positions soon — which would leave a lot of risk in long-term first-tier bonds. Shorterduration bonds with higher yields look like the more defensive option in the current conditions. The Russian Eurobond market saw little change on Thursday in the absence of significant news either from benchmarks or the local market, although U.S. economic releases (jobless statistics and durable goods orders) were slightly weaker than expectations. In the meantime we do not expect anything significant on Friday, particularly due to the holiday on western markets.
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