Kapital View – Fixed Income

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Kapital View – Fixed Income

  1. 1. 21 June 2010 Kapital View – Fixed Income Market Outlook Eurobond Market UST 10 Yield This week, we do not expect major gains in the Treasury 3.35 % p.a. market, assuming there are no new outbreaks of Sovereign debt fears or problems in China. At the same 3.30 time, any yield pressure is likely to be moderate, since investors have been reminded of risk. Eurobonds should rise due to increases in risk appetite but gains are likely 3.25 to be limited. We would continue to emphasize high- quality, low-duration issues and not chase yield. 3.20 Ruble Bond Market 3.15 Due to persistently favorable external conditions and high ruble liquidity, ruble bonds may continue to rise this 3.10 week. The negative effect from tax payments is most 14-Jun 15-Jun 16-Jun 17-Jun 18-Jun likely to be insignificant. However, in the medium term saturation of demand in the primary market and Russia 30 deterioration of the external situation may lead to sharp rises in ruble bond yields. % par 113.0 FX Market 112.5 We believe that the weaker dollar and higher oil prices will provide short-term support to the ruble, which may 112.0 even slightly appreciate against the basket this week. 111.5 The ruble may also garner some support from tax payments although we do not think that this support will 111.0 be very strong since banks have accumulated excessive funds on their accounts with the CBR 110.5 110.0 USD/RUB ▼ 31.01 -0.58 13-Jun 14-Jun 15-Jun 16-Jun 17-Jun 18-Jun EUR/RUB ▲ 38.36 0.18 Two-currency basket value, Rb ▼ 34.31 -0.23 US Dollar and Two-currency Basket EUR/USD ▲ $1.2388 + $0.0276 Federal Funds Effective Rate ▲ 0.19% + 1 bp 32.00 USD/RUB Two-currency basket value, Rb, rhs 34.85 ECB Effective Refinancing Rate 1.00% - 34.75 31.80 USD Libor, 3m ▲ 0.538% + 0.1 bp 34.65 EUR Libor, 3m ▲ 0.661% + 0.9 bp 31.60 34.55 MICEX ▲ 1368 + 2.37% 31.40 RTS ▲ 1409 + 3.88% 34.45 31.20 S&P 500 ▲ 1118 + 2.37% 34.35 MSCI EM ▲ 953 + 3.96% 31.00 34.25 UST 2 yield ▼ 0.71% - 2 bp 30.80 34.15 UST 10 yield ▼ 3.22% - 2 bp 14-Jun 15-Jun 16-Jun 17-Jun 18-Jun Russia 30 yield ▼ 5.30% - 28 bp Spread Russia 30 & UST 7 ▼ 262 bp - 27 bp WTI CDS Russia, 5y ▼ 178 bp - 10 bp 78 $/bbl CDS Greece, 5y ▲ 818 bp + 54 bp WTI, bbl ▲ $77.2 + 4.61% 77 Gold, oz ▲ $1257 + 2.45% Correspondent Accounts with 76 ▼ 530.6 - 315.1 Bank of Russia, Rb bn Deposits in Bank of Russia, Rb bn ▼ 766.9 - 93.3 75 MosPrime Rate, 3m ▼ 3.96% - 7 bp Source: Bloomberg 74 73 14-Jun 15-Jun 16-Jun 17-Jun 18-Jun Source: Bloomberg IFD Kapital, Research Department, tel.: 411-5200
  2. 2. Kapital View – Fixed Income Eurobond Market Target and Money Market Rates There are a large number of factors that should influence the Effective Rate FedFunds Target T-Bills, 3m 0.30 % p.a. Treasury market this week. However, if there are no fresh 0.25 outbreaks of Sovereign default fears, tremendously negative economic statistics or statements from politicians, these 0.20 factors should roughly balance out, resulting in little 0.15 movement in Treasury prices. 0.10 In general, events in Europe have stabilized somewhat, at least for now, and risk appetite has increased, suggesting 0.05 less demand for risk-free assets. Still, we expect solid 0.00 demand for Treasuries as investors realize that risks are Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 likely to flare up again at some point in the not too distant US Treasuries Yield Curve future. 5 % p.a. week change, bp YTD, bp Given stability in the base asset, rising risk appetite globally 10 should keep Russian Eurobonds well bid, but gains may be 4 limited. Widening spreads and low activity suggest that many -2 -2 -2 0 -2 -1 -10 market participants are on vacation. In our opinion, investors 3 -30 should emphasize quality and not move out the curve for yield, because how long conditions will remain benign is an 2 -50 -43 open question. -48 -50 1 -62 -70 The Treasury is to auction $40 bn in UST2, $38 bn in UST5 -67 -70 and $30 bn in UST7 tomorrow, Wednesday and Thursday, 0 -90 respectively. While $108 bn is a lot of paper, we note that it is 2 3 5 7 10 Issue 30 $5 bn less than Treasury placed during the last such cycle at UST Yield Curve Steepness & TIPS-spread the end of May. Then, the issues were placed with almost no premium and at very low yield levels (the yield on the 2-year UST10-UST2 spread, ppt TIPS-spread, ppt 3.0 note was a record low). 2.5 On the other hand, the yield curve has shifted down 15 bp since the last auction, making absolute yield levels less 2.0 attractive. This negative influence on demand is partly offset 1.5 by inflation expectations that also declined, meaning higher 1.0 expected real yields. The market is likely to take a wait and see attitude ahead of 0.5 the FOMC Interest Rate decision (Wednesday, 22:15 0.0 Moscow time). We reiterate our long-held belief that rates will Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 not be raised this year, and are increasingly doubtful about Weekly Corporate Leaders & Laggards 1H11. (The first move is likely to be from the 0-25 bp range to Issue YTW Price,% Chng, bp 25 bp, which would have little practical effect.) Gazprom 7.288% 8/2037 ▲ 7.37% 99.0 375 If the FOMC statement replaced that need to keep interest TNK-BP 6.625% 3/2017 ▲ 7.05% 97.8 338 rates low “for an extended period” with some other nuanced Transcap. 10.514% 7/2017 ▲ 11.35% 98.1 324 adjective, speculators’ expectations for rate hikes could again TNK-BP 7.25% 2/2020 ▲ 7.43% 98.8 238 rise, hurting longer paper. However, as previously, we expect Russia 11% 7/2018 ▲ 5.12% 137.0 225 any such price action to be short lived, as the economy and Evraz 9.5% 4/2018 ▲ 9.27% 101.3 225 unemployment will not allow the Fed to hike rates any time TMK 5.25% 2/2015 ▲ 7.06% 94.7 225 soon. Evraz 8.25% 11/2015 ▲ 8.36% 99.5 220 Eurasian Development Bank ▲ 6.09% 104.4 217 The housing market will also remain in focus as Existing 7.375% 9/2014 Vimpelcom 8.25% 5/2016 ▼ 7.45% 103.7 -19 (tomorrow, 18:00) and New Home Sales (Wednesday, 18:00) IIB 9% 7/2010 € ▼ 262.87% 91.6 -25 are announced. Data are for May, the first month without the Russtand Bank 8.485% 6/2010 ▼ 24.80% 99.8 -25 homebuyer tax credits. Major declines should help Gazprom 6.212% 11/2016 ▼ 6.07% 100.8 -25 Treasuries as they would be more evidence that rates cannot St.Peterburg Bank 10.5% 7/2017 ▼ 11.25% 99.2 -34 be raised any time soon. In this regard, financials and Nomos Bank 9.25% 12/2012 ▼ 6.93% 105.2 -36 guidance from Lennar (Thursday, bmo) and KB Home MBRD 8.875% 3/2016 ▼ 8.47% 100.3 -62 (Friday, bmo) will also be interesting. PSB 12.5% 1/2018 ▼ 8.44% 109.3 -108 Gazprom 9.625% 3/2013 ▼ 6.73% 107.0 -350 Source: Bloomberg, Kapital 21 June 2010 2
  3. 3. Kapital View – Fixed Income Among other important data we would note Durables CDS & Russa 30 Spread (Thursday, 16:30). Last month, an unexpected decline in CDS Russia 5y, bp Spread Russia 30 & UST7, bp orders ex-Transportation lent some support to bonds. Also, 450 the weekly unemployment claims bear watching since they 400 have been high and higher than expected for several weeks. 350 The German IFO Surveys (tomorrow, 12:00) are expected to 300 show some deterioration m-o-m, no doubt due to problems in 250 southern Europe and weakness in the euro. EU PMI data 200 (Wednesday, 12:00) are mostly expected slight weaker. 150 These data are more likely to affect the euro/dollar pair than Treasuries. 100 Sep-09 Nov-09 Jan-10 Mar-10 May-10 One wildcard is the G20 summit June in Toronto this weekend. On Saturday night, the Chinese central bank said US Treasury & Bund Spreads that it would allow the renminbi exchange rate to fluctuate 100 bp 2y 10y Libor 3m after it has remained unchanged for two years. Any 50 appreciation against the dollar is likely to be very gradual, if at 0 all. This move is probably to deflect criticism from the US, especially from politicians facing reelection in November. In -50 all probability, discussions will take place behind the scenes, -100 and no public statement will be market moving, as is usually -150 the case at such summits. (We also do not expect much from -200 the G8 summit on Friday and Saturday.) Rising risk appetite can be seen in global equity markets, -250 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 most of which turned in two solid weeks of gains after languishing for six weeks. Commodities have mostly gained Source: Bloomberg although performance has been uneven. Oil has performed EMBI+ Index Chng, % Spread, bp Chng, bp well, jumping 4.6% last week to $77.18/bbl of WTI. We think Venezuela ▲ 560.8 6.18 1134 -106 that crude looks set to make at run $80/bbl. This should Argentina ▲ 111.0 5.92 743 -65 enhance the appeal of Sovereign Eurobonds. Brazil ▲ 785.5 1.64 222 -17 Last week, the benchmark Russia 30 rose 1.15% to 113% of EMBI+ ▲ 517.5 1.51 309 -19 face, driving the yield down to 5.32%. The UST7 yield was Ecuador ▲ 484.3 1.33 962 2 unchanged at 2.68%, narrowing the spread to the Russian Colombia ▲ 393.4 1.31 215 -15 benchmark to 264 bp. If risk appetite and oil prices remain Indonesia ▲ 138.1 1.27 240 -19 constructive, we think Russian bonds will extend gains this Mexico ▲ 456.6 1.26 168 -12 week. Peru ▲ 751.6 1.22 199 -11 Russia ▲ 565.6 1.15 248 -19 Following the Sovereign, Russian corporates added 1-1.5%. Turkey ▲ 356.1 1.08 253 -11 Now that risk aversion has faded somewhat, issuers are S.Africa ▲ 187.8 1.03 184 -17 rushing to tap capital markets. Last week, MTS placed $750 Panama ▲ 861.7 0.78 202 -6 mn 10-year bonds to yield 8.11%. Demand was strong, and Bulgaria ▲ 769.8 0.36 337 -22 the issue immediately jumped to 101.69% of face in Phillipp ▲ 327.1 0.35 234 -3 secondary trading and ended the week at 102.16%. We Ukraine ▲ 280.5 0.19 569 0 expect more placements in the very near future, including Source: Reuters some of those issues that were postponed in May-early June. 21 June 2010 3
  4. 4. Kapital View – Fixed Income Ruble Bond Market Ruble Liquidity 1900 Mosprime o/n, rhs 5% Some calming of investor fears concerning the situation in 1800 Correspondent Accounts and Deposits with CBR, Rb bn Europe, including due to successful placement of Spanish 1700 bonds, stoked risk appetite that will probably support ruble 1600 1500 4% bonds this week. Strong liquidity with overnight rates at 2-3% 1400 p.a., 3-month MosPrime at 3.96% as of 18 June, and the 1300 impressive amount on correspondent accounts and deposits 1200 3% of banks at the CBR should prevent ruble bond yields from 1100 rising. The negative effect from payment of a third of 1Q10 1000 900 VAT on 21 June, as well as payment of excise duties and the 2% 800 mineral extraction tax on 25 June, should not be significant, in Feb-10 Mar-10 Apr-10 May-10 Jun-10 our opinion. Ruble NDF Yield Curve Placement of up to Rb 40 bn in government funds on 3-month deposits with banks at 6.5% p.a. scheduled for 22 June is 5.0% 3m ago week ago current unlikely to create much excitement. Given such high ruble 4.5% liquidity, market participants’ attention is focused on investment alternatives rather than on sources of financing. 4.0% Last week, most of the buying took place in the first tier. In 3.5% general, prices returned to mid-April levels, recouping losses 3.0% of the May-June correction. For example, Gazpromneft series 5 and 6 are very close to face value (99.8%). However, there 2.5% Months are several issues such Sibmetinvest bonds that still have not 2.0% returned to pre-correction price levels. 0 2 4 6 8 10 12 In the near future, interest in ruble bonds should be spurred by renewed activity in the primary market. The placement Money Market Rates schedule is very dense this week: Sitronics is to place Rb 2 bn 9% Mosprime 3m NDF, 3m 3-year bonds on 22 June, OGK-5, an Enel sub, is placing Rb 8% 4 bn 3-year bonds on 23 June, Alrosa is to place two issues of 7% 5-year bonds for a total of Rb 15 bn on 24 June, and Rosbank is placing Rb 5 bn 3-year bonds on 25 June. 6% Also, on 23 June, there is to be a Rb 20 bn reopening of 1- 5% year OFZ 25074. This should support demand for government 4% bonds. One should not forget, however, that demand 3% saturation in the primary market may occur very soon, and 2% together with the high risk of a correction in oil and external Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 market deterioration (on publication of European banks stress tests results or details of a global tax on financial institutions) Weekly Corporate Leaders & Laggards may trigger a medium-term surge in ruble bond yields. Issue YTM/YTP Price, % Chng, bp But for now, excess ruble liquidity should ensure demand NK Alians-01 ▲ 13.47% 101.00 350 even for issues offering slightly lowered yield levels, for MDM Bank BO-01 ▲ 8.07% 110.55 275 Moscow-48 ▲ 7.56% 96.00 194 example series 21 and 23 series 5-year Alrosa bonds for Rb 8 BALTINVESTBANK 01 ▲ 8.79% 102.00 150 bn and Rb 7 bn, respectively, to be placed this week. The Yakytskenergo-02 ▲ 7.90% 103.75 150 target coupon rate of 8.25-8.75% on series 21 issue indicates Moscow-63 ▲ 6.58% 126.50 127 a yield to a 3-year put of 8.51-9.04%, while the target coupon NLMK BO-05 ▲ 7.13% 108.00 112 rate of 8.75-9.25% on series 23 issue indicates a yield to Moscow-56 ▲ 7.30% 100.75 107 maturity of 9.04-9.58%. Moscow-61 ▲ 6.41% 123.40 87 The lower boundary of the yield to put range indicated by the MBRR 02 ▼ 7.36% 101.00 -30 underwriters suggests a premium to Gazprom and Russian Mosenergo-02 ▼ 7.12% 101.00 -30 Railways yield curves of 100-110 bp. At the same time, the Vneshprombank 01 ▼ 9.04% 102.00 -35 Alrosa Eurobond maturing in 2014 trades at a premium to the TGK-2 01 ▼ 4.36% 102.60 -40 MTS 04 ▼ 5.95% 109.20 -40 Gazprom curve of over 200 bp. Kubanenergo 01 ▼ 7.86% 100.00 -60 OGK-5 obl. ▼ 6.32% 107.25 -75 Moy Bank 3 ▼ 15.13% 100.00 -100 DalSvyaz-5 ▼ 6.78% 108.50 -170 Source: Bloomberg, Kapital 21 June 2010 4
  5. 5. Kapital View – Fixed Income On 25 June, Rosbank is to place Rb 5 bn 3-year exchange CPI & Refinance Rate bonds with a 7.94%-8.35% coupon that indicates an attractive 16% CBR Refinance Rate, % p.a. Russia CPI y-o-y, % yield to a 2-year put of 8.10%-8.50%. This means a 250-290 bp premium to the yield curve. The two Rosbank ruble issues 14% outstanding worth Rb 5 bn each and placed in November 2009 for four and five years, respectively, trade at a 140 bp 12% premium. Furthermore, there are practically no bank ruble 10% bonds in the 2-year habitat. There are MDM Bank exchange 8% bonds that may be an alternative to the new issue as they were also issued by a private bank with a similar amount of 6% assets, but offer no yield pickup despite the added duration. 4% In our opinion, proceeds are first and foremost to expand the Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 loan book. First, Société Générale, which controls Rosbank, plans to generate some 15% of foreign retail business income Russia Gold and FX Reserves in Russia in two years. However, in 1Q10, the Russian banking segment generated a €24 mn IFRS loss. Based on 600 $ bn RAS, Rosbank generated a Rb 2.6 bn net loss in 1Q10 after 550 losing Rb 10.3 bn last year. Second, it should be easier for Rosbank to expand its loan book after receiving in February a 500 Rb 4.7 bn subordinated credit from Société Générale that increased its capital adequacy to 14.1% as of end-1Q10 from 450 12.9% at yearend. This also allowed it to decrease funds on interest-free accounts with the CBR while observing the 400 regulator's requirements, and eliminate any liquidity problems. 350 Until 25 June, the Wimm-Bill-Dann book for placement of Rb May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 5 bn 3-year exchange bonds will be open. The preliminary Source: Bloomberg placement date is 1 July. The target coupon rate to maturity is 8.0-8.5% that corresponds to a yield to maturity of 8.16- 8.68%. There company has two ruble issues outstanding, for Rb 3 bn and Rb 5 bn, but both mature this year. Nevertheless, based on the yield curve, the new issue valuation looks generally adequate. From a fundamental point of view, Wimm-Bill-Dann credit quality is high. At the same time, there are some fears that its market share may decrease as a result of the agreement between Danone and Unimilk to merge their dairy businesses in Russia and the CIS. 21 June 2010 5
  6. 6. Kapital View – Fixed Income FX Market Oil & Dual-currency basket ($0.55 and €0.45) In the beginning of June, when the euro/dollar pair was 41 previous (from February 2009) renewing its long-term lows, both news and investor sentiment 40 current concerning the euro were so awful that even the tiniest pivot 39 point for the pair seemed unimaginable. Nevertheless, we are 38 37 now observing a very strong rebound in the euro with a 36 gradual testing of key levels rather than the emotional spikes 35 seen during the previous correction. Even more important, in 34 our opinion, is that the euro is changing both its trading 33 behavior and its reaction to economic news. We have seen 32 WTI, $/bbl nothing like this in the euro this year. 31 In our opinion, this may help the euro in the short term to 50 55 60 65 70 75 80 85 90 continue retracing to at least the previous May correction area around $1.26-1.27. According to CFTC, as of 15 June, the net EUR/USD non-commercial short position in the euro decreased more 1.24 $ than 40%, basically due to short covering with only minor opening of new longs. This means that the current euro 1.23 rebound is supported mainly by speculative shorts covering and traders are not in a hurry to open longs in the euro yet. 1.22 This strongly suggests that the current rebound will not be long-lived. 1.21 The favorable technical picture of other currencies that closed 1.20 above the double bottom vs. the dollar is indirect evidence that the uptrend in the euro may continue in the short term. 1.19 For example, GBP/USD closed the week above the key level 14-Jun 15-Jun 16-Jun 17-Jun 18-Jun of $1.48; AUD/USD successfully broke $0.85 and, more importantly, $0.86, where resistance was even stronger. Euro Non-Commercial Short/Long Contracts Nevertheless, EUR/JPY and GBP/JPY failed to break through 200 thousands of short long net position the double bottom, mostly due to yen strengthening. Despite contracts increased risk appetite and strong global equity markets last 150 week, the yen rose vs. the dollar, most likely due to Japanese 100 government plans to reduce the debt and budget deficit. 50 Furthermore, over the weekend China announced its intention 0 to make the renminbi exchange rate more flexible. This could also be a short-term positive for the yen although gains should -50 be limited. Overall, the Chinese decision should be considered -100 as a short-term factor supportive of global risk appetite. -150 Last week, investor fears about EU Sovereign debt faded a Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 little after a number of satisfactory bond placements and the desire of the EU leaders to disclose the results of the bank Currency Performance against US Dollar stress tests. For example, Spain placed €3 bn 10-year bonds with a high bid-to-cover ratio. Also, there was good demand 6% week change YTD 4% for 30-year Spanish bonds. 2% While noticing some positive short-term signals for the euro, 0% we do not think that it has reached its long-term bottom as we -2% -4% expect another wave of risk aversion due to increased fears -6% concerning stability of the current model of economic growth -8% in China and general slowdown in global GDP in 2H10. -10% -12% In any event, we believe that a weaker dollar and higher oil -14% prices will provide short-term support to the ruble, which may -16% even gain slightly vs. the basket this week. The ruble may also EUR NOK GBP CHF RUB AUD NZD BRL JPY CAD receive some support from tax payments (a third of 1Q10 VAT Source: Bloomberg on 21 June; excise duties and mineral extraction taxes on 25 June) although we think that any such support will be limited since banks have accumulated too much funds on accounts with the CBR. 21 June 2010 6
  7. 7. Kapital View – Fixed Income Sector Yield Curves OFZ & City of Moscow 8.5% Yield to maturity/put, % p.a. 8.0% OFZ yield curve 194 Moscow-48 7.5% Moscow-49 36 107 Moscow-56 46018 46022 Moscow-39 16 7.0% 25071 -9,99 46021 Moscow-62 43 46014 30 46017 20 25068 10,01 26202 15 Moscow-63 127 6.5% Moscow-61 87 9,06 26201 Moscow-54 26200 15 6.0% 25072 25069 10 25065 15 8 26199 26198 25073 10 5.5% 10 25067 46002 5 5.0% Moscow-58 10 25064 25070 -24 25063 4.5% 25066 Duration, days Superscript indicates price change, bp 4.0% 0 364 728 1092 1456 1820 2184 2548 2912 3276 Source: Kapital Oil & Gas 9.0% ITERA FINANS 01 8.5% 8.0% 7.5% Gazprom neft BO-05 50 70 Lukoil-04 Gazprom neft BO-06 Gazprom-A11 60 7.0% 20 Gazprom-A9 21 Gazprom neft 03 Lukoil NK BO-2 5 5 Lukoil NK BO-3 6.5% Lukoil NK BO-4 5 Lukoil NK BO-1 10 Lukoil NK BO-5 60 Gazprom-A13 6.0% 38 Gazprom-A8 OFZ yield curve 5.5% Gazprom neft 04 5.0% 4.5% 4.0% 0 364 728 1092 1456 Source: Kapital 21 June 2010 7
  8. 8. Kapital View – Fixed Income Sector Yield Curves Telecoms 9.5% 9.0% 8.5% Tattelekom ser. B 8.0% 25 35 UTK-05 obl. VK-Invest 01 7.5% -1 MTS 01 25 7.0% UralSvazInform-ser.07 63 MTS 05 DalSvyaz-5 -170 UralSvazInform BO-01 6.5% OFZ yield curve VK-Invest 03 6.0% MTS 04 -40 Sibirtelecom 08 5.5% 5.0% 4.5% -10 SibirTelekom-06 4.0% 3.5% 0 364 728 1092 Source: Kapital Utilities 8.5% 8.0% 150 Kubanenergo 01 -60 Yakytskenergo-02 TumenEnergo 02 15 7.5% Lenenergo 03 TGK-1 01 70 Mosenergo-03 Mosenergo-02 -30 7.0% 634 MOEK 01 6.5% TGK-1 02 -75 OGK-5 obl. OFZ yield curve 6.0% FSK EES 04 Mosenergo-01 5.5% 5.0% GidroOGK-01 -8 4.5% OGK-2 01 -40 TGK-2 01 4.0% Enel OGK-5 BO-02 3.5% 3.0% 0 364 728 1092 Source: Kapital 21 June 2010 8
  9. 9. Kapital View – Fixed Income Sector Yield Curves Metallurgy 12.0% 11.5% 11.0% 10.5% 01 SIBMETINVEST 02 60 10.0% Mechel BO-02 Mechel BO-03 5 Mechel 5 24 EvrazHolding Finans 01 35 9.5% EvrazHolding Finans 03 Mechel 4 9.0% 8.5% 5 Severstal BO-04 8.0% Mechel BO-01 Severstal BO-02 5 37 MMK BO-05 7.5% NLMK BO-06 50 -1 CHTPZ 3 NLMK BO-01 7.0% 19 NLMK BO-05 112 25 Severstal BO-01 TMK-03 Кривая доходности ОФЗ 6.5% MMK BO-02 30 6.0% 5.5% 5.0% 4.5% 0 364 728 1092 1456 Source: Kapital State Banks 8.5% 8.0% 25 Rosselhozbank 03 Bank VTB-05 7.5% Rosselhozbank 10 Rosselhozbank 11 16 Rosselhozbank 08 75 Rosselhozbank 09 74 7.0% VTB24 1-IP 10 6.5% OFZ yield curve VTB 24 01 15 25 Evraziyskiy bank razvitiya 03 Rosselhozbank 07 15 6.0% 5.5% Gazprombank 5.0% Rosselhozbank 02 4.5% 4.0% -10 VTB24 04 3.5% 0 364 728 1092 1456 Source: Kapital 21 June 2010 9
  10. 10. Kapital View – Fixed Income Financial Sector 13% KB Renessanase Kapital- 03 12% PCHRB-Finans 01 -2 11% Moy Bank 5 25 KB Renessanase Kapital- 02 NS-finans 01 10% 5 25 AKB SKB BO-04 MKB 08 Vneshprombank 01 -35 Pervobank BO-01 9% BALTINVESTBANK 01 150 TatfondBank-04 Vostochniy Express Bank BO-01 TatfondBank-06 8% TatfondBank-05 10 MBRR 05 MDM Bank BO-01 275 9697 Petrokommerzbank-5 Ak Bars bank-04 HCF bank-05 obl. -4 Promsvyazbank-5 TatfondBank-07 Sankt-Peterburg-BO-01 -30 MDM Bank-07 MBRR 02 11 -5 Ak Bars bank-03 -5 MBRR 04 7% Russbank 03 NOMOS-9 Russkiy Standart-6 Reiffeisenbank 04 10 Investtorgbank 4 Zenit BO-01 MDM Bank-05 -21 -5 MBRR 03 Russkiy Standart-8 Rosbank A3 Petrokommerzbank-7 -6 -19 NOMOS-8 -25 Rosbank A5 6% Severnaya Kazna-Bank-02 OFZ yield curve Zenit-05 -9 8 Master Bank 03 HCF bank-04 obl. 5% 40 Sudostroitelniy bank-3 Hanty-Mansiiskii bank 01 MKB 05 4% -13 Petrokommerzbank-4 NOMOS-11 -8 3% 0 364 728 Source: Kapital 21 June 2010 10
  11. 11. Kapital View – Fixed Income Eurobond Yields: State Banks 8.0% YTW, p.a. 34.9 7.5% Rusag 16 7.0% 62.6 Rusag 18 6.5% VTB 35 23.6 81.4 VTB 18 64.1 Gazprombank 15 162.6 Rusag 17 100 VTB 15 102.2 Russia 28 6.0% 5.5% 120.1 Rusag 14 144.5 Russia 30 175 Russia 20 Russia 18 225 5.0% Rusag 14 73.5 76.5 Rusag 13 -3.8 Gazprombank 11 4.5% Sberbank 13 23.6 Sberbank 13 23.4 133.3 Russia 15 4.0% 3.5% 26.7 12.5 VTB 11 US Treasuries 20 3.0% Sberbank 11 14.1 US Treasuries 17 2.5% 10.8 7.8 Minfin 11 US Treasuries 15 2.0% Rusag 10 5.9 1.5% 4.7 US Treasuries 13 1.0% 3.1 US Treasuries 12 0.5% Durations, day s Superscript indicates price change, bp 0.0% 0 364 728 1092 1456 1820 2184 2548 2912 3276 3640 4004 4368 4732 Source: Bloomberg, Kapital 21 June 2010 11
  12. 12. Kapital View – Fixed Income Eurobond Yields: Financial Sector 15% 14% CB Ren.Capital 13 13% 12% Renaissance 11 Transcap. 17 323.6 3.8 11% St.Peterburg Bank 17 -34.4 Russtand Bank 15 45 Russtand Bank 16 10% 5 PSB 15 29.2 Alfa Bank 17 49.3 145 Russtand Bank 11 Nomos Bank 15 9% Rosbank 12 -8.7 MBRD 16 -62.1 8.3 PSB 12 30.3 PSB 18 -108.3 Russtand Bank 10 -1 Nomos Bank 16 Alfa Bank 15 0.6 Bank of Moscow 17 -8 Alfa Bank 15 53.5 8% Bank of Moscow 15 18.2 15.5 Alfa Bank 13 40 AK Bars 12 6.2 Promstrojbank 15 -4.3 Credit Europe Bank 13 7% URSA Bank 11 17.6 Alfa Bank 12 40 Nomos Bank 12 -36.4 Bank of Moscow 15 46.3 HCF Bank 11 -4.4 PSB 13 81.6 AK Bars 11 -4.6 11 13.5 PSB MDM Bank 11 18 Eurasian Development Bank 14 217.3 6% Bank of Moscow 13 31.5 175 Russia 30 225 5% PSB 10 -0.2 Russia 18 -5.5 Transcred. 11 133.3 Russia 15 4% 3% -11.3 Bank of Moscow 10 US Treasuries 17 10.8 7.8 2% Minfin 11 US Treasuries 15 4.7 US Treasuries 13 1% 3.1 US Treasuries 12 0% 0 364 728 1092 1456 1820 2184 Source: Bloomberg, Kapital 21 June 2010 12
  13. 13. Kapital View – Fixed Income Eurobond Yields: Oil & Gas 8.5% 8.0% 7.5% 115 TNK-BP 20 237.5 Gazprom 37 375 TNK-BP 18 155.5 Gazprom 34 150 TNK-BP 16 337.5 7.0% TNK-BP 17 Gazprom 19 175 39.4 Lukoil 22 90.8 -350 ALLIANCE OIL 14 -0.9 Gazprom 20 Gazprom 22 200 Gazprom 13 Gazprom 18 192.1 Lukoil 19 215 6.5% Lukoil 17 49.2 Russia 28 100 6.0% Gazprom 16 -25 71.2 TNK-BP 15 -4.2 Gazprom 14 95.7 5.5% TNK-BP 13 120.1 8.6 Russia 20 Gazprom 13 73.4 Lukoil 14 Russia 30 175 5.0% Gazprom 13 97 Russia 18 225 Gazprom 13 41.6 135 6.7 Transneft 14 TNK-BP 12 4.5% 133.3 Russia 15 4.0% TNK-BP 11 -13.4 -2 Gazprom 13 3.5% 12.5 US Treasuries 20 3.0% US Treasuries 17 2.5% 10.8 7.8 Minfin 11 US Treasuries 15 2.0% 1.5% 4.7 US Treasuries 13 1.0% 3.1 US Treasuries 12 0.5% 0.0% 0 364 728 1092 1456 1820 2184 2548 2912 3276 3640 4004 4368 4732 Source: Bloomberg, Kapital 21 June 2010 13
  14. 14. Kapital View – Fixed Income Eurobond Yields: Non-Financial Sector 13.5% 13.0% 12.5% KZOS 15 150 12.0% 11.5% 11.0% NKNC 15 12.5 10.5% 10.0% 9.5% 225 Evraz 18 9.0% -0.2 KUZBAS 10 8.5% 220 Evraz 15 46.8 8.0% Raspad. 12 31.6 Evraz 13 51 76.5 Severstal 14 -6.9 Vimpelcom 18 7.5% Alrosa 14 76.5 Sinrk 15 Vimpelcom 16 -19.2 46.2 Severstal 13 7.0% TMK 15 224.9 6.5% 106.7 TMK 11 48.5 3.1 6.0% Euchem 12 Vimpelcom 13 116.1 RuRAIL 17 74.5 5.5% Nov.Port 12 41.1 Russia 30 175 5.0% MTS 12 Russia 18 225 4.5% 133.3 Russia 15 4.0% 15 3.5% Vimpelcom 11 4.6 Sistema 11 3.0% MTS 10 3.2 US Treasuries 17 2.5% 10.8 7.8 2.0% Minfin 11 US Treasuries 15 1.5% 4.7 US Treasuries 13 1.0% 3.1 US Treasuries 12 0.5% 0.0% 0 364 728 1092 1456 1820 2184 2548 Source: Bloomberg, Kapital 21 June 2010 14
  15. 15. Kapital View – Fixed Income Primary Market Recent Corporate Bond Placement Results Auction Date Issue Put / Maturity, Issue Size, Rb Bid, Rb mn Yield to Put, Yield to years mn p.a. Maturity, p.a. 10-Jun TransKonteiner 02 -/5 3,000 - - 8.99% 9-Jun AKB SKB BO-04 1.5 / 3 2,000 - 10.04% - 9-Jun Hanty-Mansiiskii bank 02 1/3 3,000 - 8.00% - 7-Jun RegionEnergoInvest 01 3/6 1,200 - 8.68% - 7-Jun SpecStroiFinans 01 3/6 1,200 - 8.68% - 7-Jun Energospecsnab 01 3/6 1,200 - 8.68% - 4-Jun Glavnaya doroga 01 -/1 300 - - 10.46% 27-May LenSpecSMU BO 02 -/3 2,000 - - 15.31% 25-May Inturist 02 2/3 2,000 - 14.49% - Source: Kapital Recent Government Bond Placement Results Auction Date Issue Announced Value, Bid, Rb mn Placed Value, Rb Yield (at average Premium, bp Rb mn mn weighted price) 21-Apr OFZ 25073 11,132 5,507 1,711 5.97% -3 14-Apr OFZ 25072 6,042 5,122 2,037 5.98% 2 17-Mar OFZ 25073 16,369 4,087 6.10% -4 3-Mar OFZ 25073 20,728 9,958 6.58% -1 24-Feb OFZ 25073 22,493 10,229 6.88% 2 24-Feb OFZ 25073 8,709 1,057 6.10% -3 27-Jan OFZ 25073 45,000 27,630 1,668 7.17% 0 20-Jan OFZ 25072 45,000 62,041 38,958 7.11% -5 16-Dec OFZ 25063 5,174 3,586 7.74% - Source: CBR, Kapital Recent US Treasuries Placement Results Date Issue YTM, p.a. Prev Sold, bn Prev Bid-to- Prev Avg Indirect Prev Avg Cover Bidder 10-Jun US Treasuries 30 (r) 4.182% 4.490% 13.0 16.0 2.87 2.60 2.61 36.0% 32.5% 36.4% 9-Jun US Treasuries 10 (r) 3.242% 3.548% 21.0 24.0 3.24 2.96 3.02 40.2% 41.9% 40.7% 8-Jun US Treasuries 3 1.220% 1.414% 36.0 38.0 3.23 3.27 3.06 46.7% 50.7% 52.3% 27-May US Treasuries 7 2.815% 3.210% 31.0 32.0 2.88 2.82 2.78 51.1% 59.5% 53.3% 26-May US Treasuries 5 2.130% 2.540% 40.0 42.0 2.71 2.75 2.65 40.6% 48.9% 48.3% 25-May US Treasuries 2 0.769% 1.024% 42.0 44.0 2.93 3.03 3.10 36.2% 31.0% 41.7% 13-May US Treasuries 30 4.490% 4.770% 16.0 13.0 2.60 2.73 2.58 32.5% 36.8% 37.6% 12-May US Treasuries 10 3.548% 3.900% 24.0 21.0 2.96 3.72 2.95 41.9% 43.1% 41.3% 11-May US Treasuries 3 1.414% 1.776% 38.0 40.0 3.27 3.10 3.03 50.7% 52.2% 53.9% Source: Bloomberg, Kapital Upcoming Corporate Bond Payments Upcoming Federal Loan Bond (OFZ) Payments Date Issue Coupon Size, Rb Date Issue Coupon Size, Rb mn 21-Jun LenSpecSMU 01 16.00% mn 78.9 23-Jun OFZ 26202 11% 1,116.8 MOIA-01 9.00% 40.4 30-Jun OFZ 25065 12% 1,376.3 Promsvyazbank-6 10.25% 255.6 7-Jul OFZ 25066 10% 1,052.0 SB-Finans 01 1.00% 3.7 14-Jul OFZ 26199 6% 612.8 SB-Finans 01 put 1,500.0 OFZ 46003 10% 929.8 22-Jun AvtoVAZ-3 9.60% 239.4 OFZ 46003 redemption 18,648.8 AvtoVAZ-3 maturity 5,000.0 21-Jul OFZ 25059 6% 623.6 Agrokom 13.00% 97.2 OFZ 25064 11% 1,335.2 Agrokom put 1,500.0 OFZ 25067 11% 1,267.7 Bashneft ANK 01 12.50% 935.0 OFZ 26200 6% 760.5 Bashneft ANK 02 12.50% 935.0 OFZ 26201 6% 226.4 Bashneft ANK 03 12.50% 1,246.6 OFZ 46022 7% 1,055.5 Blagoveshchensk-02 9.25% 3.5 28-Jul OFZ 25072 7% 1,517.6 Generir. compani 01 12.00% 119.7 Source: CBR, Kapital Source: CBR, Kapital 21 June 2010 15
  16. 16. Kapital View – Fixed Income Calendar Date Time Country Event Period Consensus Prior 22 Jun 12:00 Germany IFO - Business Climate Jun 101,2 101,5 12:00 Germany IFO - Current Assessment Jun 99,8 99,4 12:00 Germany IFO - Expectations Jun 102,7 103,7 18:00 US Existing Home Sales May 6,15 mn 5,77 mn 18:00 US Existing Home Sales MoM May 6,5% 7,6% 18:00 US Richmond Fed Manufact. Index Jun 20 26 23 Jun 18:00 US New Home Sales May 410 k 504 k 18:00 US New Home Sales MoM May -18,7% 14,8% 22:15 US Federal Funds Target Rate US 0,25% 0,25% 24 Jun 16:30 US Continuing Jobless Claims Weekly 4560 k 4571 k 16:30 US Durable Goods Orders MoM May -1,3% 2,9% 16:30 US Durables Ex Transportation MoM May 1,0% -1,0% 16:30 US Initial Jobless Claims Weekly 460 k 472 k 25 Jun 16:30 US Core PCE QoQ 1Q10 0,6% 0,6% 16:30 US GDP Annualized QoQ 1Q10 3,0% 3,0% 16:30 US GDP Price Index QoQ 1Q10 1,0% 1,0% 16:30 US Personal Consumption 1Q10 3,5% 3,5% 17:55 US University of Michigan Confidence Jun 75,5 75,5 28 Jun 16:30 US PCE Core MoM May 0,1% 0,1% 16:30 US PCE Deflator YoY May 1,8% 2,0% 16:30 US Personal Income MoM May 0,6% 0,4% 16:30 US Personal Spending MoM May 0,2% 0,0% 29 Jun 18:00 US Consumer Confidence Jun 62,5 63,3 30 Jun 16:15 US ADP Employment Change Jun 55 k 55 k 17:45 US Chicago Purchasing Manager Jun 59,3 59,7 1 Jul 18:00 US Construction Spending MoM May -0,6% 2,7% 18:00 US ISM Manufacturing Jun 59,3 59,7 2 Jul 16:30 US Change in Manufact. Payrolls MoM Jun 20 k 29 k 16:30 US Change in Nonfarm Payrolls Jun -65 k 431 k 16:30 US Unemployment Rate Jun 9,7% 9,7% 18:00 US Factory Orders MoM May -0,1% 1,2% 6 Jul 8:30 Australia RBA Announces Interest Rates 4,5% 4,5% 8 Jul 15:00 UK BOE Announces Interest Rates 0,5% 0,5% 21 June 2010 16

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