"УНИВЕР Капитал": Eurobonds Market Outlook

World Market

This week investors focus their attention to Fed Chairwoman Janet Yellen who is going to speak on the U.S. economy and monetary policy Tuesday. Last week some Fed officials said that its possible the target rate may be raised in the FOMC meeting in late April. On Monday this week St. Louis Fed President James Bullard said that that he expected the Fed’s next two meetings to be “live”, meaning the new rate hike decision is on the table.

Recent U.S. economical statistics showed some signs of improvement. Consumer spending moderately rose up 0.1% in February. But  the core PCE - the Fed's preferred inflation measure - is still running below its 2% target. The relatively low inflation suggests the Fed will continue to raise interest rates cautiously and gradually this year.

The ICE U.S. Dollar index has been steady at about 96 points in anticipation of new rate hike. Gold on Monday traded at a one-month low, having pinned to a stronger dollar. UST-10 yield today is 1.875%.

Brent oil have been floating above 40 dollar a barrel level last week. The number of active U.S. rigs drilling for crude fell by 15 to 372 last week, according to the service company Baker Hughes, which released its report on last Thursday, a day earlier than usual because of Friday’s market holiday – Easter.

China is going to continue take steps to improve economy condition. One of the measures is to reduce tax burden on Chinese companies to spur consumption and production in the country. Chinese premier Li Keqiang said that Beijing would stick to its pledge to deliver growth of at least 6.5% annually between now and 2020, even as it pushes ahead with structural reform.

Russian Market

Russian market over last week traditionally demonstrated high correlation with the world oil market. Despite high volatility, Russian market index, MICEX, was moving gradually downward due to unstable oil prices. Russian ruble last week had also depreciated against the USD and tried to breach 70 ruble level, but finished the week at 68.454 per USD. Russian sovereign CDS 5Y rose to the level higher than 300 points.

Russian sovereign yield curve demonstrated moderate upward movement by 10-15 bps along the curve. Sovereign Eurobonds suffered the most from negative world market information environment. RUSSIA-42 and -43 lost 1.06% and 0.86% respectively pricewise. Oil and gas and banking sectors last week also showed negative mood. Despite that GPBRU-18 and RURAIL-22 gained the most adding 0.48% and 0.90% to their prices respectively.

Thus we continue to keep our recommendation for Russian Eurobond market unchanged. Investors may reduce Eurobonds stakes in their portfolios and reduce leverage till at list the scheduled meeting of major OPEC and non-OPEC producers in Doha next months. But any real agreement to cut world oil production is very unlikely since some big oil producers won’t participate in the meeting. Thus despite high oil market volatility, oil prices may stay at the current level in the near future.