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Source Comment
August 18, 2004
Raiffeisen Bank Daily Market Monitor: We expect that current favorable environment should persist in the shot-term
Description
On the local bond market Centertelecom issue was placed only partially yesterday: Rub 4.68 bln of Rub 7 bln were sold. Coupon rate was set at 13.8%, which corresponds to a 14.3% yield to put. Company said that it considers the placement as successful. As the placement was not finished in a single day, the effect of the issue on the market should be spread over time. GKO21172 redemption and OFZ coupon payments scheduled for today will release Rub 7.99 bln, Rub 5 bln of which could potentially leave the system again as a result of an additional OFZ placement. However, the rest could compensate for the money paid at the CenterTelecom auction yesterday, so we do not expect major changes for the market today. Eurobond market remains strong after weaker than expected US economy data released yesterday. US industrial production growth amounted to 0.4% in July (vs 0.5% consensus expectations), while CPI inflation in July was actually negative at –0.1% (0.2% consensus), suggesting that US economy growth is not as sustainable as expected. Market benchmark UST’10 yield declined by 5bps, while Russian Eurobond segment lagged slightly behind, resulting in spread widening by 1bps. Another supportive factor for Emerging markets was Turkey’s sovereign rating upgrade by S&P from B+ to BB-. We expect that current favorable environment should persist in the shot-term.
August 17, 2004
Alfa Bank Fixed Income Market Weekly: We anticipate price consolidation on the Russian debt market amidst low activity this week
Description
GKO-OFZ market Volatility on the GKO-OFZ market could increase due to large payments and auctions scheduled for this week. Despite the fact that GKO-OFZ payments will exceed the issue’s original volume (R5 bln) by nearly R3 bln, don’t expect to see any major spikes in ruble-based bond prices, as taxes will rain on the parade as usual. Eurobond market No market-moving news is expected to hit the bond market this week, so we anticipate price consolidation on the Russian debt market amidst low activity. We may see some short-term spurts in volatility on Tuesday and Thursday in response to U.S. macroeconomic reports.
B&N Bank Fixed Income Daily: We do not see a reason for the spread to widen in the circumstances of good macroeconomics and high oil prices
Description
EXTERNAL DEBT MARKET Despite some US Treasury yield increase yesterday, Russian Eurobonds remained in an upward trend, which resulted in their spread narrowing to UST for the first time in a long while. The Russia-30 held firmly above 94.000, whilst its spread to the 10Y UST narrowed to 323-325 bp from 330- 335 bp seen over the last 2-3 weeks. US Treasury yields added some 5 bp against the background of an equity market rally and considerable decrease in the oil prices. In this situation, the UST market even did not react to an extremely low Empire Manufacturing index, which came out 2.5 times less than expected. The Aries-14 increased noticeably again, adding 0.875%, which resulted in the Aries-14 spread to the Russia-30 narrowing to 80 bp already. Against this background, Russian corporate Eurobonds appreciated by 0.125-0.5%. Today, the market has remained at its yesterday’s level. The Russia-30 has stabilized at 94.125-94.250 by midday, with the spread at 323 bp. The important US consumer inflation data due out today should determine the future market direction in the short term. If the index comes out higher than expected, profit taking may begin in the market, since the prices of US Treasuries and Russian Eurobonds have reached their 4-month highs. On the other hand, if the inflation reading is moderate, then price increases are likely to be insignificant due to the same reason: the current high price levels. Overall, we remain optimistic and expect the spread of Russian Eurobonds to US treasuries to narrow further by 20-30 bp in the next few months. We do not see a reason for the spread to widen in the circumstances of good macroeconomics and high oil prices, and at the same time we believe that political risks (the Yukos case) have been already entirely priced in. LOCAL DEBT MARKET The majority of the most liquid issues inched down 0.1-0.3% in rather quiet trading on Monday. The main driver is the upcoming today’s large-volume Centertelecom-4 placement, which exerts pressure on the secondary market. Investors do not show an obvious desire to participate in the auction in the situation of the vacation season and lack of ideas, creating a general negative informational background around the placement itself and the market in general. Slightly worth ruble liquidity and such factors as some increase in the RUR/USD exchange rate, as well as more volatility in the external debt market, exert quite limited influence on the ruble debt market. The market outsiders remain the long Moscow municipals, which lost some 1% on medium turnover yesterday. Against the backdrop of market stagnation, with more impending placements of not only first-tier corporates but city municipals as well, we continue recommending to focus on the medium-term Moscow issues, which remain the highest-yielding on the yield curve. In the corporate first tier, non-aggressive selling prevailed on almost no turnover, with the TNK outperforming the market. In the second and third tiers, selective deals remain in place, forming no general market direction. A limited range of issues traded indicates more interest in the enough short and high-yield bonds of the most reliable issuers
VTB Capital Fixed Income Comment: Despite Russian eurobonds drifting slightly lower yesterday, trading was once again confined to a narrow price range and low volumes
Description
Despite Russian eurobonds drifting slightly lower yesterday, trading was once again confined to a narrow price range and low volumes. Russia managed to outperform the wider EM asset class with the Russian EMBI+ narrowing 7 bps to 305 bps, compared to the overall EMBI+ contracting by only 3 bps. In the absence of any significant economic data release Russia continued to track UST throughout the day and the benchmark RU30 traded from an opening level of 941/8 to the day’s low of 937/8 before closing at around 94.0. With the yield on the 10-year UST note rising from 4.229% to 4.264% the RU30 spread over UST tightened marginally to around 326 bps at close. Elsewhere in Russia, relatively few trades were registered across the ARIES cluster of credits and the more liquid ARIES ’14 traded at around 1085/8 with the spread over RU30 tightening further from 85 bps to a new low of 81 bps. Russian corporate and banking eurobonds posted a mixed performance with selling pressures witnessed among some of the banking credits as opposed to buying interest across the oil & gas sector. Indeed, with Urals crude oil trading at above US$40 pb and no signs of abating, the significant valuation gap between Russian energy companies and their international peers enhances the attractiveness of such credits and essentially offers a relatively cheap oil play. Russia opened this morning on a slightly firmer tone and with RU30 first traded at 941/8 the spread over UST has narrowed to +324 bps. While the RU30 spread has failed to sustain any move beyond the +320 bps level over the past month in our view another set of less sanguine US economic data may indeed provide the impetus to retest such spread levels. The key data highlight remains the release of US CPI and given the easing in recent business survey price measures and the widely publicised lower gasoline prices, upside risks remain contained.
August 16, 2004
VTB Capital Fixed Income Comment: Despite low trading volumes further price gains were registered across Russian eurobonds on Friday
Description
Despite low trading volumes further price gains were registered across Russian eurobonds on Friday as yet another batch of price supportive economic data pushed UST higher and consequently the EM asset class followed suit. As a result of Russia’s sovereign debt moving higher across the curve the Russian EMBI+ spread over UST narrowed 4 bps to 312 bps, its lowest level since end July. Once again the long end of the curve outperformed and the benchmark RU30 traded from an opening level of 931/2 to close at the day’s high of around 941/16 -3/16 , and on a price basis remains almost 2.5% higher over the previous month. With the yield on the 10-year UST note falling from 4.256% to 4.229% the RU30 spread over UST tightened by 4 bps from 334 bps at opening to 330 bps at close. While the ARIES cluster of credits tracked the sovereign curve higher the ARIES ’14 issue outperformed to reach a new traded high of 1081/4 and the spread over RU30 contracted from 87 bps to 85 bps. Elsewhere in Russia, the corporate and banking eurobonds were generally higher bid with noticeable price moves being registered across the telecoms credits and the the longer duration Gazprom issues. Russia has opened this morning on a slightly firmer tone and RU30 first traded at 941/8, with the spread over 10-year UST tightening further to 327 bps. While the recent trading range would indicate that at these levels Russia remains vulnerable to selling pressures, direction this week is again likely to be dominated by the US economic calendar which in our view will remain price supportive and the market retaining its bid. With regards to the scheduled data releases tomorrow’s CPI will remain the key focus as the market seeks to reaffirm the Fed’s recent assessment that underlying inflation is still expected to be relatively low.
B&N Bank Russian Debt Market Daily: Demand is beginning to shift to the Russian corporate and bank Eurobond segment
Description
EXTERNAL DEBT MARKET Investors’ attention was focused again on the US economic statistics on Friday. The July producer price index and Michigan confidence index came out considerably less than expected, which caused further price increases of US Treasuries. As a result, the yield of the 10Y UST fell to a 4-month low of 4.19%. Thus, the rally in the US Treasury market continued despite a new interest rate hike by the Fed. The latest US economic data speak in favor of further moderate Fed rate increases, which considerably diminishes the risks of investments in bonds. Against this background, investor demand continues prevailing in the emerging debt market. Russian Eurobonds continued their steady increase, with the Russia-30 trading at 94.000 (+1%) by the end of the trading session in Moscow on Friday. Still, the growth of Russian Eurobonds remains in sync with US Treasuries, leaving the spread to the non-risky asset practically unchanged over almost a month at 330-340 in the Russia-30 vs. the 10Y UST. Demand is beginning to shift to the Russian corporate and bank Eurobond segment, which appreciated quite noticeably on Friday. Medium- and longdated issues added 1%, including the Sistema-08, the Vimm-Bill-Dann-08, the Severstal-09, the Vimpelcom-09, and the Severstal-14. Corporates’ spreads to Sovereigns narrowed 15-40 bp over one day. The market added a bit more this morning, with the Russia-30 reaching 94.125-94.250. The market remains extremely inactive. Investors are waiting for the tomorrow’s US consumer price index. If the index comes out higher than expected, profit taking may begin in the market, since the prices of US Treasuries and Russian Eurobonds have reached their 4-month highs. On the other hand, if the inflation reading is moderate, then price increases are likely to be insignificant due to the same reason: the current high price levels. LOCAL DEBT MARKET The most actively traded OFZs and first-tier corporates closed almost unchanged on Friday. In the Moscow municipal sector, non-aggressive selling was seen at the long end. Investor activity decreased considerably across the board ahead of the new RUB 7 bn placement by CenterTelecom, which arouses investors’ doubts. The issuer and investors understand that a yield premium needs to be offered at the auction, given the current market conditions, the issue volume, and the issuer’s position in the industry. The issuer has indirectly indicated an approximate coupon yield of 13.5%, formally implying a yield of some 14% annualized to a put option in 2.3 years. Despite common investor skepticism, there may be quite a few investors willing to buy the bond even at such a premium to the telecom yield curve. In general, we do not expect the market to change significantly in the short term and remain optimistic about the market prospects in the medium term.
August 13, 2004
VTB Capital Fixed Income Comment: Russian eurobonds continued to trade within a narrow range for most of yesterday
Description
Russian eurobonds continued to trade within a narrow range for most of yesterday, and with UST stronger in late trading following the stronger than expected demand in the 10-year UST auction and consequently Russian debt moved higher. Indeed, at 4.27% the yield of the US$14 billion auction was lower than the market expectation of 4.29% and the bid/cover ratio reached 2.90, the second highest level in over 10 years. As a result of this move the Russian EMBI+ spread over UST tightened 5 bps to 316 bps, gradually approaching the lower end of its recent trading range. With selling pressures once again evident at the short end of the sovereign curve, namely across the RU07 issue, the longer duration issues outperformed. The benchmark RU30 traded from an opening level of 9215/16 to an intra-day high of 935/16 before closing at 931/4, with the spread over the 10-year UST note remaining within a 338 bps to 334 bps range. The ARIES credits also tracked the sovereign curve higher with the ARIES ’14 issue outperforming on a price basis (+87 bps over RU30). Elsewhere in Russia, activity across the corporate and banking eurobonds was largely confined to the longer dated and more liquid Gazprom cluster of credits while the announcement by the Russian authorities to appoint DKW to perform an independent valuation of Yukos’ main production unit, Yuganskneftegaz, stimulated buying interest across the Sibneft ’07 and ‘09 issues. Russia has opened this morning with RU30 first trading at 931/2 (+ 334 bps over UST) and given the firmer UST performance is expected to edge higher in early trading. Following yesterday’s uninspiring US economic data releases it appears that today’s US PPI and University of Michigan Confidence data is likely to be received in a similar submissive manner and the market focus will remain on next week’s US CPI data.
VTB Capital Moscow Narodny Bank Economic Viewpoint
August 12, 2004
VTB Capital Fixed Income Comment: Russian eurobonds continued to trade within a narrow range yesterday, with the lack of direction a function of both the summer period and absence of relevant economic data
Description
Amid low trading volumes Russian eurobonds continued to trade within a narrow range yesterday, with the lack of direction a function of both the summer period and absence of relevant economic data. At the same time, the long awaited announcement by Fitch Ratings to reaffirm Russia’s long-term foreign currency rating at BB+ (stable outlook) finally quashed the spurious investment grade rhetoric that has been prevailed throughout the market in recent months. Sentiment was further hampered by yet another negative Yukos announcement and minor losses were registered across the sovereign curve. At the long end, the benchmark RU30 traded from an opening level of 93.0 to a low of 925/8 before tracking UST slightly higher in late trading and closing at 9213/16, resulting in a slight widening in the spread over 10-year UST from 337 bps to 339 bps. With relatively few trades occurring across the ARIES credits the magnitude of price moves were less pronounced than those across the sovereign curve and the ARIES ’14 spread over RU30 contracted to a new low of around 85 bps. Similarly, modest price movements were also witnessed across Russian corporate and banking eurobonds with actual trades limited. Russia is expected to open this morning with RU30 quoted at the 9215/16 level and direction influenced by today’s US economic data, including import price index, retail sales, initial jobless claims, business inventories and the minutes from the June FOMC meeting. Nevertheless, in view of the market expectations in comparison to last month it remains unlikely that the data will surprise too much on the upside and support for current levels is expected. In addition, today’s US$14 billion US Treasury auction of 10-year notes will also provide an important barometer for investor sentiment.
August 11, 2004
VTB Capital Fixed Income Comment: Russian eurobonds continued to trade within a narrow range yesterday as the market moved cautiously ahead of the eagerly awaited FOMC announcement
August 10, 2004
Alfa Bank Fixed Income Market Weekly: Last week Eurobond price movements failed to form any clear trend
Description
GKO-OFZ market OFZ prices will drift sideways this week. On the one hand, upward price movement will be limited by accelerated ruble devaluation. On the other hand, sufficient liquidity and declining yields of Russia’s external debt instruments will prevent large sales of ruble-denominated government bonds. Eurobond market The market is expecting the US to raise official rates by 25 bpts on August 10, while official reports will be crucial for the global debt market. The latest disappointing figures on the US labor market and consumer demand leaves us to hope that the Fed will refrain from raising official rates at one of its upcoming meetings.
VTB Capital Fixed Income Comment: Elsewhere in Russia, a similar performance was evident across сorporate and banking eurobonds, although volumes were once again low with relatively few trades occurring.
Description
Despite initial buying interest, Russian eurobonds traded within a narrow range yesterday and closed lower in response to both a slightly weaker UST market and a general shift in EM sentiment during late trading. As a result the Russian EMBI+ widened marginally by 1 bp to 318 bps, its highest level in almost a week. Activity was confined to the long end of the sovereign curve and the benchmark RU30 traded from an opening level of 931/2 to an intra-day high of 933/4 before closing lower at around 931/16. With the yield on the 10-year UST note rising from its near 4-month low of 4.222% lto 4.258%, the move in RU30 resulted in its spread over UST widening from 334 bps at opening to the 339 bps at close. The ARIES group of credits also tracked the sovereign lower with the ARIES ’14 spread over RU30 tightening to a new low of 88 bps, and at current levels remains over 90 bps tighter than its issuance level. Elsewhere in Russia, a similar performance was evident across corporate and banking eurobonds, although volumes were once again low with relatively few trades occurring.
Alfa Bank Fed commentary will be crucial, as the latest disappointing US macro data leaves us to hope that the Fed will refrain from hike the Fed rate at one of its upcoming meetings.
Description
Our recommendations: THE WEEK\'S NEWS Russia’s Ministry of Economic Development and Trade publishes 1H04 economic data Exchange and money markets Sufficient resources are helping banks support speculators playing on a strong dollar. But in the end, the rate of ruble depreciation will ultimately depend on the CBR. The FOR payments won’t have much of an impact on interbank loan rates due to lower deduction regulations. GKO-OFZ market OFZ prices will drift sideways this week. On the one hand, upward price movement will be limited by accelerated ruble devaluation. On the other hand, sufficient liquidity and declining yields of Russia’s external debt instruments will prevent large sales of ruble-denominated government bonds. Eurobond market The market is expecting the US Fed to raise official rates by 25 bpts on August 10, while official reports will be crucial for the global debt market. The latest disappointing figures on the US labor market and consumer demand leaves us to hope that the Fed will refrain from raising official rates at one of its upcoming meetings.
August 09, 2004
VTB Capital Fixed Income Comment: It was the longer duration and more liquid issues that registered the largest gains, namely the Severstal ’14, Gazprom ’13 and ’34
issues
Description
Following the release of a disturbingly weaker than expected US employment report for July and associated doubts regarding the strength of the US economic recovery, the subsequent rally in UST dominated EM debt and Russian eurobonds improved markedly. The long end of the sovereign curve outperformed with RU30 trading from an opening level of 917/8 to a post data high of 933/4 before closing at around 931/2. With the yield on the 10-year UST note declining to below 4.2%, its lowest level since early April, the move in RU30 resulted in its spread over UST narrowing slighty from 341 bps at opening to 337 bps at close. In addition to the renewed bout of short covering providing the initial impetus for Friday’s price gains, the announcement that the Moscow Arbitration Court had ruled that Yukos’ main production unit, Yuganskneftegas, can no longer be sold by court marshals to settle tax debts also contributed to improved sentiment towards Russia during late trading. Elsewhere in Russia, the ARIES group of credits also tracked the sovereign higher as the ARIES ’14 traded as high as 108.0, although its spread over RU30 widened by around 15 bps to reach 105 bps. While Russian corporate and bank eurobonds also improved on the strength of the sovereign, with most issues better bid, it was the longer duration and more liquid issues that registered the largest gains, namely the Severstal ’14, Gazprom ’13 and ’34 issues.
B&N Bank Fixed Income Daily: We believe that the spread of the Russia-30 to the 10Y UST may narrow to 300 bp over the next month
Description
EXTERNAL DEBT MARKET The long-awaited US labor market data have literally shocked investors. The amount of newly created jobs in the US (change in non-farm payrolls) in July was eight (!!!) times less than expected by the market. Thus, extremely high oil prices and new stagnation in the labor market question sustainability of economic growth in the US, which greatly reduces the chances of further, all the more considerable, interest rate hikes in the US. It is possible that the rates will be left unchanged at tomorrow’s US Fed meeting, although only several days ago the probability of their increase by 25 bp was high. The data caused a sharp decline in the 10Y UST yield from 4.40% to 4.17% in only a few minutes, as well as dollar weakening vs. the Euro. Against this background, Russian Eurobonds surged by 2% at once. The Russia-30, traded at 92.000 ahead of the data release, rose to 93.500-93.625 (the yield fell by 15 bp), while its yield spread to UST remained unchanged at 340 bp. The Aries-14 bonds rose to 108.00, while their spread to the Russia-30 reached a new record low of 84 bp. Following the Sovereign segment, Russian corporate Eurobonds rose significantly. Medium-dated issues added 0.5%, while long bonds (such as the Gazprom-13, 34, 20, and the Severstal-14) appreciated 1-2%. Today, the Russian Eurobond market has remained at Friday’s levels. The Russia-30 was traded in the range of 93.625-93.750 by midday, while its spread to UST narrowed by 10 bp to 330 bp, as the yield of the 10Y UST has increased from 4.17% on Friday to 4.25% now. If the US Fed leaves its rates unchanged tomorrow (which is the most probable outcome), a bullish trend should remain in place in the bond market, while emerging market debts should appreciate at a greater pace due to their spread narrowing to US Treasuries. We believe that the spread of the Russia-30 to the 10Y UST may narrow to 300 bp over the next month. LOCAL DEBT MARKET Most first-tier issues added 0.1-0.3% on Friday in response to a local rally in the external debt market. There are no reasons for situation worsening, as no shortage of ruble liquidity of banks is obvious now, while the external debt market is stronger and the general informational background has somewhat improved. It is worth noting that most turnover in the government bond sector, and to a lesser degree in the Moscow municipals and first-tier corporates, is concentrated at the short end of the yield curve. Only those investors, who can afford considering investments in first-tier corporates as medium-term strategic investments in case of possible market decline, may venture speculative plays on first-tier growth now. For the rest of investors, now is not the best time for speculative plays. Increased volatility in the external debt market accompanied by quite fast escalation of devaluation and inflation expectations makes investors either decrease portfolio duration or move into second- and third-tier assets. No important events are expected in the primary market this week. In the more distant future, worth noting is planned large-scale bond placement by CenterTelecom at a considerable premium to the current telecom yield curve (according to preliminary data, the issuer expects the coupon to yield 13.5%). This is to exert negative pressure on the rest of telecom bonds in the secondary market.
Sberbank CIB Fixed Income Weekly: Trading on last week\'s external debt market was sedate
Description
External Debt Trading on last week\'s external debt market was sedate. Prices took their cue from the US Treasuries, volumes were low and there was little market.moving news on the home front. Most investors were reluctant to rush into anything ahead of the US employment figures out today, which seem weak. What is more activity is usually lower in August, which is a traditional holiday period. The corporate Eurobond segment was especially quiet. The only flurry of interest came at week end amid news that Gazprom might buy a major chunk of YUKOSн assets, which sent the gas giantнs bonds up by 50.60 bps. The US Federal Open Market Committee (FOMC) is due to meet on August 10 to discuss the possibility of raising interest rates. Ahead of this, Russian bond prices should remain in fairly close correlation with the US Treasuries. We do not expect the FOMC to raise interest rates next week and thus forecast an upward trend on the Eurobond market. Domestic Debt This week, all eyes of investors in ruble bonds were focused on events on the money and foreign exchange markets. The start of the new month brought down interest rates to very attractive levels (1.2% for overnight loans). However, this failed to encourage demand for ruble bonds, at least in the first half of the week, as the dollar gained eight kopeks against the ruble over the first two working days of August. Such a jump caused some confusion among investors, many of who frantically tried to guess how low the Central Bank would let the nominal ruble go (there were no doubts that the monetary authorities had given the drop мtheir blessingо). The exchange rate settled just as quickly as it had jumped, the dollar stabilizing in the second half of the week. This and the cheap cash on offer seemed enough to revive demand for ruble bonds, and the prices of most first.tier papers nudged upwards. The outlook for the coming week looks fairly rosy. That said, we are unlikely to see the start of a stable rising trend during the holiday period.
August 06, 2004
B&N Bank Fixed Income Daily: Today, the market has become yet less active, as investors are likely to make their medium-term buy or sell decisions only after the release of the key US payroll data
Description
EXTERNAL DEBT MARKET In anticipation of weak US payroll data, US Treasury yields declined again yesterday. Thus, the UST prices have been increasing for 7 days in a row, constituting their longest rally since the summer 2003. Against this background, Russian Eurobonds added 0.5-0.75% yesterday. The Russia- 30 traded around 92.000. By midday, the bond rose to 92.375, but saw a number of deals at 91.875 by the end of the trading session on negative news about Yukos. However, the market recovered from there rather quickly, and the bond closed above 92.000. Today, the Russia-30 tried to go down, reaching 91.875, but rebounded quickly back to 92.000-92.125. It may be stated once again that robust support is located at 92.000, and investors prefer buying Russian debt at those levels, as it looks cheap from the viewpoint of the spread in the environment of the current macroeconomic situation in Russia, record high oil prices, and stable US Treasuries. The Aries-14 increased to 106.125, while its yield spread to the Russia-30 has ceased narrowing and stabilized at 90-95 bp over the last few days. Russian corporate and bank Eurobonds added 0.25-0.5%. Today, the market has become yet less active, as investors are likely to make their medium-term buy or sell decisions only after the release of the key US payroll data in several hours from now. In general, We remain optimistic about the Russian Eurobond price trend in the medium and long term. Russian issues look cheap from the viewpoint of their spreads to US Treasuries and to other EMD, which should let them remain immune to some extent to interest rate hikes in the US. From the technical point of view, the market has more than once demonstrated during the last few months that demand for the Russia-30 tends to increase considerably when the spread reaches 350 bp, while sellers become significantly more active when the spread falls below 300 bp. The spread is near its upper boundary now (at 340 bp), and therefore we expect buyers to dominate in the market in the medium term. LOCAL DEBT MARKET The longest OFZs’ yield curve almost did not change on Thursday. Most non-government blue chips added 0.1-0.3%. As we had expected, most investors did not reinvest rubles received from OFZ redemptions in the government bond sector. Part of them reinvested funds in corporate and sub-Sovereign blue chips. However, a considerable part of investors banally cashed out or used the funds to participate in a four-month repo with the Central Bank, placing money at a yield of 4.75%, which is more than the short OFZ yields, while it does not carry the market risk of yield increase. There are several reasons for this, including the recent rather significant jump of the US dollar, given uncertainty in the external debt market ahead of the key US labor market data release. All this is taking place against the backdrop of general market apathy due to the vacation season, and against quite negative for the ruble debt market informational background, including expectations of new large-scale issues, developments around Yukos, and continued sentiment of sluggish banking crisis lingering on. Looking at the market with general optimism in the medium term, we do not expect considerable increases in the near future. Corporate blue chips have all but reached their short-term fair levels, with the Gazprom-3 yield easing to 9.05%, which makes further declines possible only provided considerable improvement of the general investment background. Second- and third-tier bonds continue seeing selective demand, which does make it reasonble to expect their frontal spread narrowing to the first tier.
VTB Capital Fixed Income Comment: Russian sovereign debt continued to trade within a narrow range yesterday with the impact of a firmer UST performance
Description
Russian sovereign debt continued to trade within a narrow range yesterday with the impact of a firmer UST performance offset by the negative sentiment surrounding Yukos and EM contagion impact from a weaker Brazilian market. Indeed, the announcement by the Justice Ministry that the freeze on Yukos accounts remained in force sent a clear signal that the authorities are refusing to ease pressure on the company and Russia subsequently closed with a negative bias. As a result, the benchmark RU30 traded from an opening level of 923/8 to close at the day’s low of around 917/8, a move that led to the spread over 10-year UST widening from 332 bps to 340 bps. Elsewhere in Russia, activity across the corporate and banking eurobonds was largely confined to the Gazprom cluster of credits while renewed buying interest was again evident across the Alfa ’05 issue. Russia has opened this morning at similar levels to yesterday’s close, RU30 first trading at 917/8, and despite the spread widening slightly to 341 bps over UST we reiterate our view that given Russia’s favourable oil credit status Russian sovereign debt remains appealing at present levels. Moreover, with the +350 bps spread level widely perceived to be an attractive entry point any further widening in the spread is likely to result in increased opening of long positions. Nevertheless, ‘Pay day’ beckons in the US today with the release of widely anticipated July US non-farm payroll data being the key market focus. Despite the slower expansion in the ISM survey employment data, in our view a recovery in labour conditions is still underway and a 255k gain in non-farm payrolls is anticipated. In view of the recent ‘terror’ focus and positive price action during the past week, anything other than a strong employment outcome (Bloomberg survey median +240k) is likely to result in a bias towards the market re-pricing a more ‘measured’ approach to increasing interest rates and thus resulting in further upside for UST.
August 05, 2004
B&N Bank Russian Debt Market Daily: The spread is near its upper boundary now (at 340 bp), and therefore we expect buyers to dominate in the market in the medium term
Description
EXTERNAL DEBT MARKET US Treasuries remained strong upon the release of weaker US labor market data yesterday. Despite the fact that the ISM Non-Manufacturing Index came out higher than expected, at 64.8 vs. 61.5 expected, its employment component fell sharply from 57.4 to 50, which significantly lowered the anticipated level of the US payrolls due out tomorrow. In this connection, chances of aggressive interest rate hikes in the US are less. Also, the US Treasury is to sell $51 bn worth of 3-5-10-Y UST at the auctions next week instead of the expected $54 bn, because the US economic growth has increased tax revenues and decreased the country’s budget deficit by 15%. Thus, the US Treasury market may remain in an uptrend in the near future. The yield of the 10Y UST fell to 4.39-4.41% yesterday evening. This allowed Russian Eurobonds to continue appreciating. The Russia-30 opened at 92.000-92.250 yesterday morning but fell to 91.750 on profit taking by the Moscow close. However, the price returned to 92.125-92.375 in late New York trading, where it has remained today. Robust support is perceived in the market: investors are buying Russian debt, which looks cheap in the environment of the current oil prices, excellent macroeconomic situation in Russia, and stability in the US Treasury market. It is worth noting a considerable increase in the Sibneft Eurobonds by 1.5% upon the release of the company’s plans to abandon usage of offshore companies and increase its profit tax payments, which was positively interpreted by the market. The rest of the Russian corporate and bank Eurobonds appreciated 0.25-0.5%. The market is to remain inactive until the release of the key US labor market data on Friday; therefore, it makes no sense to establish positions in the market until that moment. In general, We remain optimistic about the Russian Eurobond price trend in the medium and long term. Russian issues look cheap from the viewpoint of their spreads to US Treasuries and to other EMD, which should let them remain immune to some extent to interest rate hikes in the US. From the technical point of view, the market has more than once demonstrated during the last few months that demand for the Russia-30 tends to increase considerably when the spread reaches 350 bp, while sellers become significantly more active when the spread falls below 300 bp. The spread is near its upper boundary now (at 340 bp), and therefore we expect buyers to dominate in the market in the medium term. LOCAL DEBT MARKET The majority of the most liquid non-government ruble bonds somewhat increased on Wednesday against the background of more trading activity. The long OFZ yield curve shifted up quite noticeably due to a yield premium provided by the MoF at the bond re-opening auctions. The MoF quit its habit to place bonds at a minimal premium to the secondary market and re-opened the OFZ 46014 at an averaged-weighted yield of 8.18% and the OFZ 46001 at an averaged-weighted 7.02%, providing a premium to the market of about 15-20 bp, which allowed the MoF to attract some RUB 3.8 bn from the market. Obviously, the MoF is aware that, despite the fact that the OFZ market is a market of several players, the yields in this market are fundamentally unattractive. Even taking into account the yield premium at the auctions, the volume of re-invested funds totaled only 25% of the entire amount of yesterday’s redemptions. In the non-government bond sector, trading activity increased, but this did not cause substantial price increases in the first-tier corporates and sub- Sovereigns. The telecom sector slightly underperformed the market on negative pressure due to the upcoming major placements. In the second tier, investor activity is increasing. Part of investors have assessed their state of ruble liquidity and are gradually beginning to increase the share of the most oversold bonds in their portfolios.
VTB Capital Fixed Income Comment: Russian debt is likely to remain within its present narrow trading band
August 04, 2004
B&N Bank Fixed Income Daily: We expect buyers to dominate in the market in the medium term
Description
EXTERNAL DEBT MARKET In anticipation of the US payroll data to be published on Friday, which should to a considerable extent determine the future Fed decision on interest rates next Tuesday, the global bond market remains inactive, with insignificant price changes seen yesterday. Despite stability in the US Treasury market during most of the day, with the yield of the 10Y UST remaining around 4.45%, Russian Sovereign and corporate Eurobonds were under non-aggressive selling pressure, as investors were taking profits after considerable growth over the last few days. As a result, Sovereign issues depreciated some 0.25%, with the Russia-30 easing to 91.625. Corporates lost some 0.5-0.75% at the long end. Still, overall investor activity was low. In late London and New York trading, US Treasury yields fell 3-4 bp to 4.42% in the 10Y UST, after the US personal consumption and personal income data came out less than expected, and the oil price hit a new record high, supporting the opinion that the rate of economic growth in the US may suffer from such high oil prices. As a result, Russian Eurobonds opened higher today. The Russia-30 added 0.5% at once, rising to 92.000-92.125. The market is to remain inactive until the release of the key US labor market data on Friday; therefore, it makes no sense to establish positions in the market until that moment. In general, We remain optimistic about the Russian Eurobond price trend in the medium and long term. Russian issues look cheap from the viewpoint of their spreads to US Treasuries and to other EMD, which should let them remain immune to some extent to interest rate hikes in the US. From the technical point of view, the market has more than once demonstrated during the last few months that demand for the Russia-30 tends to increase considerably when the spread reaches 350 bp, while sellers become significantly more active when the spread falls below 300 bp. The spread is near its upper boundary now (at 340 bp), and therefore we expect buyers to dominate in the market in the medium term. LOCAL DEBT MARKET The majority of the most liquid ruble bond issues inched down against the backdrop of minimal turnover in the OFZ and the Moscow municipal sectors. Corporates were traded actively enough without an obvious trend. The ruble debt market has not been reacting strongly to a rather considerable ruble weakening over the last two days. There is no mass selling, but there are also less those wishing to buy actively in the current situation. Sufficient ruble liquidity and current interest rate levels make it possible to assess the prospects of the ruble debt market with enough certainty in the medium term, anticipating yields to decrease after the end of the vacation season, given stable Russian Eurobonds. It should be noted that the new plans of CenterTelecom to place a large bond issue soon are to negatively affect the telecom bond sector, which has been recovering over the last few days on the announcement by UralSvyazInform (URSI) concerning postponement of its bond issue.
VTB Capital Fixed Income Comment: we still perceive Russian debt attractive at current price levels, particularly with the RU30 spread at around +336 bps over UST
August 03, 2004
B&N Bank Fixed Income Daily: In rather thin trading, Russian Eurobonds continued increasing yesterday against the backdrop of strong US Treasuries and somewhat better information flow relating to Yukos
Description
EXTERNAL DEBT MARKET In rather thin trading, Russian Eurobonds continued increasing yesterday against the backdrop of strong US Treasuries and somewhat better information flow relating to Yukos. The Russia-30 was as high as 92.250 intraday and closed at 91.875, adding 0.25% for the day. The Aries-14 increased 0.5%, continuing to overperform the market and reaching 106.00, which caused the spread of the Aries-14 to the Russia-30 to narrow to a new record of 90 bp. Russian corporate and bank Eurobonds also inched up 0.125-0.375% yesterday. Only the Russian Standard Bank Eurobonds corrected some 0.375% to 101.875 on profit taking after a sharp increase last week. Next Friday, very important for the global bond market US payroll data are to be published, which should largely determine the Fed interest rate policy as soon as at the FOMC meeting next Tuesday. The global bond market is likely to stay inactive ahead of the data release. In general, We remain optimistic about the Russian Eurobond price trend in the medium and long term. Russian issues look cheap from the viewpoint of their spreads to US Treasuries and to other EMD, which should let them remain immune to some extent to interest rate hikes in the US. From the technical point of view, the market has more than once demonstrated during the last few months that demand for the Russia-30 tends to increase considerably when the spread reaches 350 bp, while sellers become significantly more active when the spread falls below 300 bp. The spread is near its upper boundary now (at 340 bp), and therefore we expect buyers to dominate in the market in the medium term. LOCAL DEBT MARKET The majority of the most liquid issues were mixed within 0.1-0.3% on Monday against the background of general market stagnation. Only the 1st tier corporates were more or less actively traded, while investor activity in the Moscow municipals and OFZs was practically zero. The yield curve of the long OFZs has not changed and is now at 7.45-8%, turnover was some $1.2 mn. In the Moscow municipals, the most actively traded was the Moscow-34 issue, with RUB 109 mn worth of bonds changing hands, whereas the entire sector turnover was some RUB 141 mn. Activity increased somewhat in the telecom sector thanks to the recent UralSvyazInform announcement that the company does not want to attract financing at more than 10-11% p.a. and is ready to postpone bond placement until a better time. In the 2nd and 3rd tiers, selective buying prevails, which does not support the broad market. Despite some dollar strength and situation improvement in the external debt market along with better ruble liquidity, considerable increases in the ruble debt market are unlikely in the short term. Given the current situation in the currency market and in the Eurobond market, it is reasonable to expect a weak uptrend to continue in ruble bonds. For the market to quit sideways trading, there is insufficient clarity in the external markets and there are not enough investors in the domestic market, as part of them are on vacations.
VTB Capital Fixed Income Comment: The recent recovery in Russian eurobonds appeared to stagnate yesterday, influenced by a less than sanguine UST performance
Description
The recent recovery in Russian eurobonds appeared to stagnate yesterday, influenced by a less than sanguine UST performance and the Russian EMBI+ spread over UST widened by 3 bps to 316 bps. Despite slightly weaker than expected US construction spending, lower ISM manufacturing employment and price components, and also a reduced US Treasury financing requirement for Q3 (US$89 billion compared to previous estimate of US$91 billion) UST declined for the first day in five as the yield on the 10-year note fell to 4.475%. In response to this move and amid low trading volumes the benchmark RU30 initially moved higher from an opening level of 921/8 to the intra-day high of 921/4 before tracking UST lower in late trading to close at the day’s low of 9113/16. On a spread basis, this sluggish performance resulted in the RU30 spread over 10- year UST remaining relatively unchanged at 333 bps. The ARIES cluster of credits also followed the sovereign curve marginally lower with the ARIES ’14 spread over RU30 widening by around 5 bps to reach 97 bps. Similarly, Russian corporate and bank eurobonds were slightly lower by the end of the trading session with most activity occurring across the Gazprom credits. A continuation of this weakness is evident in early trading with RU30 opening today at 913/4, resulting in a marginal widening in the spread to 334 bps over UST. While a host of US economic data is scheduled for release today, including personal income, PCE deflator and vehicle sales, in the absence of any sizeable deviation from consensus estimates it appears that overall activity is likely to remain low and conviction lacking as the market positions itself ahead of Friday’s key employment data. Latest preliminary data from the Federal State Statistics Service indicate that Russia’s consolidated budget over the first five months of 2004 reached a surplus of around RUB358.4 billion (US$12.35 billion) compared to RUB228.8 billion (US$7.47 billion) during the same period in 2003. While the underlying position was supported by revenue growth outpacing the increases in expenditure, with Ural’s crude oil price averaging around US$31.9 pb on a YTD basis compared to a budget estimate of US$22 pb, the original budget surplus estimate of 0.5% of GDP will be substantially surpassed in 2004. At the same time, Russian oil production reached a new Federation high of 9.3 mb/d in July, dispelling fears of any supply disruption relating to the ongoing Yukos proceedings.
Alfa Bank Fixed Income Market Weekly: This coming week promises calm conditions on the global debt market, as no major news is expected over the next few days
Description
GKO-OFZ market In the second half of the week OFZ prices are likely to advance boosted by payments on OFZs. Until then the auctions scheduled on August 4 will limit demand for bonds. Eurobond market This coming week promises calm conditions on the global debt market, as no major news is expected over the next few days. Expect activity to be low, in part because of the typical summer doldrums and because investors are awaiting the U.S. FOMC meeting scheduled for August 10. Important U.S. macro indicators will be released on Friday, which should drive volatility up toward the end of the week.
August 02, 2004
Alfa Bank Important U.S. macro indicators will be released on Friday, which should drive volatility up toward the end of the week. Untill activity will be low.
Description
Our recommendations: Exchange and money markets During the first half of the week, expect overnight rates to remain at slightly higher levels (1-3% p.a.) due to this week’s scheduled tax payments, after which market conditions should stabilize altogether. The CBR raised its support level to R29.135/$, which should cause the rouble to move into a new range. GKO-OFZ market In the second half of the week OFZ prices are likely to advance boosted by payments on OFZs. Until then the auctions scheduled on August 4 will limit demand for bonds. Eurobond market This coming week promises calm conditions on the global debt market, as no major news is expected over the next few days. Expect activity to be low, in part because of the typical summer doldrums and because investors are awaiting the U.S. FOMC meeting scheduled for August 10. Important U.S. macro indicators will be released on Friday, which should drive volatility up toward the end of the week.
B&N Bank Fixed Income Daily: Russian Eurobonds continued growing steadily on Friday, appreciating all in all 3% at the long end over the last two trading days
Description
EXTERNAL DEBT MARKET Russian Eurobonds continued growing steadily on Friday, appreciating all in all 3% at the long end over the last two trading days. Thus, the market has considerably recovered after a sell-off at the beginning of the last week. The negative background of the Yukos case has somewhat eased, which made the US Treasury market the main driver. Meanwhile, the US Treasuries have surged over the last two days, due to several reasons. First, record high oil prices bring up concerns about sustainability of economic growth. In this connection, the 2Q04 US GDP data came out considerably lower than expected on Friday, at 3.0% vs. 3.7% expected. Second, information on Al Qaeda reportedly preparing new terrorist attacks on the major US cities appeared on Friday, also stirring up more demand for US Treasuries. As a result, the yield of the 10-year US Treasury Notes fell from 4.60% to 4.43% over two days. Against this background, the Russia-30 added another 0.5% to 99.000-99.125 in Moscow trading on Friday, and the price reached 92.000 later in New York, although it was only 89.500 on Wednesday. It is worth noting that the Aries bonds outperformed the market again. The spread of the Aries-14 to the Russia- 30 has already narrowed to 95 bp, thus decreasing by half over the last month. Russian corporate and bank Eurobonds rose by 0.125-0.875%. We remain optimistic about the Russian Eurobond price trend in the medium and long term. Russian issues look cheap from the viewpoint of their spreads to US Treasuries and to other EMD, which should let them remain immune to some extent to interest rate hikes in the US. From the technical point of view, the market has more than once demonstrated during the last few months that demand for the Russia-30 tends to increase considerably when the spread reaches 350 bp, while sellers become significantly more active when the spread falls below 300 bp. The spread is near its upper boundary now (at 340 bp), and therefore we expect buyers to dominate in the market in the medium term. LOCAL DEBT MARKET The majority of the most liquid issues added 0.1-0.3% on Friday in rather quiet trading. Among the Moscow municipals, the most actively traded was the 31st issue, which remains yielding the most in the sector. In the Sub- Sovereign sector, buying prevailed on more trading activity, with the Moscow Region bonds being the leaders in turnover. Among the corporate blue chips, the VTB-4 saw the most turnover, while its position on the yield curve looks rather attractive to us. In the second and third tier, selective buying was observed. No important events are to take place in the primary market this week, and thus the secondary market should continue to be driven largely by the external debt market. In the second and third tier, we expect sporadic activity to stay in place. Given the current conditions in the domestic currency market and in the Eurobond market, it is possible to expect a weak uptrend to hold in the ruble issues. For the market to quit sideways trading, there is still insufficient clarity in the external markets and not enough investors in the domestic market, as part of them are on vacations.
VTB Capital Fixed Income Comment: Once again, the largest gains were registered across the longer duration
and more liquid Gazprom credits
Description
Russia’s external debt continued to advance on Friday with weaker than expected US GDP data providing the catalyst for a renewed bout of shortcovering and a stronger UST market subsequently provided support for EM debt. While gains were registered across Russia’s sovereign curve, both the RU18 and RU28 outperformed at the long end of the curve, up 1.10% and 1.0% on a price basis. At the same time, the benchmark RU30 also witnessed a similar move, trading up from an opening level of 913/8 to an intra-day high of 9115/16 before closing in New York at 917/8. With Russia slightly lagging the UST move upwards the RU30 spread over 10-year UST note widened slightly from 327 bps to 330 bps at close, and at this spread level remains around 3 bps higher over the previous week. Elsewhere in Russia, the ARIES cluster also moved higher with the ’14 issue registering the largest gains, closing at a new high of 1057/8 and resulting in the spread over RU30 tightening to around 92 bps. Despite corporate trading volumes remaining low, liquidity continues to improve and the sector as a whole moved higher in line with the sovereign curve. Once again, the largest gains were registered across the longer duration and more liquid Gazprom credits.
Sberbank CIB Fixed Income Weekly: Assuming that there is no negative news from the YUKOS affair, spreads could tighten slightly
Description
External Debt By far the main factor affecting Sovereign Eurobonds this week was developments in the YUKOS saga. The first two and a half days brought nothing but disappointment for Russian Eurobond holders and the flood of negative news caused foreign investors to bail out en masse. Many, it seems, are very negative about the Russian marketнs prospects in the medium term and are reducing their exposure across the board. This trend changed in the second half of Wednesday. Technically, the market was clearly oversold and a bounce seemed inevitable. At the same time, investor sentiment was given a boost by the decision of the bailiffнs office to recall the order forbidding YUKOSн subsidiaries from selling or otherwise disposing of property. As a result, the spread of the Russia 30, which had widened to 350 bps by mid week, dropped back to 325 bps by week end. The gloom spilled over into the corporate sector. Evraz Holding was forced to reduce its Eurobond placement from the planned $2000300 mln to $150 mln, citing unfavorable market conditions, while Gazprom saw its secured Eurobonds, placed last week, fell below 98% of par. Admittedly, the gas giant made matters worse itself by announcing plans to issue another $2.5 bln in similar bonds soon, so the risk of extra supply put additional pressure on the papers in circulation. Next week is unlikely to bring any major changes on the external debt market. Assuming that there is no negative news from the YUKOS affair, spreads could tighten slightly. Domestic Debt The ruble bond market has stagnated and prices of most papers are fluctuating slightly on low turnover. It is interesting that, unlike the Eurobond and equity markets, ruble bonds stood firm in the turbulence created by the developments in the YUKOS affair this week, mainly because there are so few foreign investors in the sector. That said, one knock0on effect from the YUKOS saga was becoming clearer towards week end. Demand for foreign currency inched up (as is typical during crises on the Russian market), which naturally made ruble bonds less attractive and pushed up rates on the money market, bringing down bond prices slightly. Meanwhile, some investors had cause to celebrate. Russian Standard Bankнs second0tranche bonds leapt from below par on Tuesday to over 104% on Wednesday morning, following news that French group BNP0 Paribas had bought a 50% stake in the company that owns 90% of the bank. The appearance of such a large international player has slashed the bankнs credit risk. Although the bonds cooled off slightly afterwards, we believe that they have reached new price heights. This event may signal the arrival of a new blue chip on the ruble bond market. Next week, we expect the market to stay flat and volumes to remain low.
July 30, 2004
B&N Bank Fixed Income Daily: In general, we remain optimistic about the Russian Eurobond trend in the medium and long term
Description
EXTERNAL DEBT MARKET After several days of continuous fall, the Russian Eurobonds bounced higher rather considerably yesterday. The Russian Eurobonds recovered in line with the rest of the Russian assets. The long Russian bonds added 1.5-2.5%, while their yields and spreads to US Treasuries decreased 20-30 bp over one day. The Russia-30 was strong, rising above 91.000 by the end of the day, while its spread to the 10Y UST reached 330 bp. Today, the Russia-30 extended its gains against the background of the generally stable US Treasuries. Today, the spread of the Russia-30 has already narrowed to 325 bp. In Russian corporate Eurobonds, liquidity and price action was seen almost exclusively in the long Gazprom issues (-13, - 20, and -34), which added 1.0-1.5% yesterday. In general, we remain optimistic about the Russian Eurobond trend in the medium and long term. LOCAL DEBT MARKET Rather significant slump in ruble liquidity in the banking system, with bank balances in correspondent accounts at the Central Bank falling to RUB 107 bn from RUB 141 bn and overnight rates rising above 6%, did not exert much influence on the ruble debt market. First, it should be noted that ruble liquidity still remains considerable enough, while investors are rather actively using the mechanism of repo deals with the Central Bank. Second, the main driver of the ruble bond market now is the external debt market, which has somewhat improved recently. Third, it is now is the holiday season, when the market has neither desire nor opportunity to move anywhere without obvious reasons. The majority of the most liquid issues were mixed within 0.1-0.3% in quiet trading on Monday. The yield curve of the long OFZ issues was almost unchanged at 7.55-8%, with no reasons for a significant move away from the current levels. Among the Moscow municipals, the most actively traded was the longest 38th issue, which fell slightly. In the Sub-Sovereign segment, moving out from the long Komi issues into the short 4th Komi issue was observed, which reflected the general market mood. In the corporate blue chips, the most actively traded was the TNK-5, which closed unchanged. In the second and third tier, semblance of activity was produced by sporadic, however rather considerable deals.
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