OREANDA-NEWS. September 15, 2011. Primary Market

The 26205 auction was marginally positive as 45% of the initially planned volume was placed. The yield for the auction was set at 8.1% without any premium to the secondary market. Nevertheless, we still believe the bond is overvalued. Shorter-term bonds of the 206 and 204 series look interesting: we believe they have 20-25 bpts of potential. Unfortunately, due to current yield volatility this price gain is unlikely to be realised as long as global pressures persist.

Observations and Recommendations

Although the CBR decided to reduce the spread between lending and funding rates by 50 bpts to 275 bpts, cut the repo rate to 6.5% and increase the deposit rate to 3.75%, we do not see these steps as triggers for buying long-term OFZs. We note that the liquidity issue is clearly worrying the CBR as rates for non-collateral lending were also reduced by 25 bpts. The falling repo rate, a slowdown in inflation, a decline in primary supply – all of these positive factors for OFZs are evaporating due to negative global market sentiments.