Primary Market
As we expected the 26205 placement was weak: only 21% of the RUB10bn offered was taken up at 8.45%, a discount to the secondary market in terms of yield. We note that 26205 is not a very liquid instrument and demand at the auction might have been generated by investors covering shorts.
Observations and Recommendations
We do not expect a positive end to the month. Greece, the US Congressional budget vote and poor local liquidity are all potential causes of negative news flow. The best strategy for now would involve flattening the overall portfolio’s DV01 by shorting liquid OFZs 25077 and 26203. These bonds are optimal from the point of view of liquidity, long duration and minimal coupon among other OFZs. By short selling, we achieve a minimal negative carry within a three-to-four duration bucket.
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