OREANDA-NEWS. October 20, 2011. For the third time in a row MinFin cancelled its OFZ placement. The decision was driven by high secondary market yields as well as the banking sector’s complex liquidity situation. Over the past week, the average daily volume of repo deals with the Central Bank exceeded RUB300bn. Given that demand for liquidity will increase next week as tax payments come due, we do not rule out another OFZ placement cancellation.

Observations and Recommendations

Our spread idea has started to perform, recouping half its losses due to a slide in OFZ4 futures and gains in OFZ2 futures (see panel on the right). We still recommend avoiding long-term OFZ issues despite their attractive spreads to the NDF curve. Next Monday, after details on the EU’s plans to resolve its sovereign debt crisis are made public, we suggest closely examining OFZ 25077 as our relative value analysis reveals this bond as the best potential performer – we particularly note its attractive spread above the NDF and RUONIA OIS curves