Банк Москвы

Bank of Moscow: Fixed Income Daily

Local Market

The storm continues

Money market: a series of records

Global Markets

AIG to follow Lehman and Merrill?

Russian bonds follow the negative path

Fed in the spotlight

Fixed Income Statistics

http://www.mmbank.ru/content/files/FI_Statistics.pdf http://www.mmbank.ru/content/files/FI_Statistics.pdf

News Flash

Liquidity

n FinMin has lifted the ceiling for budget money allocation auctions to 1.23 trln. Rub. / Prime-TASS

n According to Alexey Kudrin, It is too early to invest the National Wealth Fund money in the Russian market now as it is necessary to control the money supply and take into account the oil prices. / Prime-TASS

n NOMOS-BANK will organize the second 3 bln. rub. bond issue of Atlant-М holding. / Cbonds

Primary market

n VTB Leasing Finance has cancelled the bond issue scheduled for 17 September due to "unfavorable market conditions" / VTB

n Erkonproduct plans to place the second 1-bln. bond issue with a 4-year maturity. The issue was registered under 4-02-36170-R number in January 2008. The target yield of the issue is 16.5-17.5 %. / АК&M

Issuers

n ISO GPB Ipoteka 29 September will make early redemption of the debut bond issue. The price will be set at 39 rubles per bond. / Cbonds

n MBRD plans to issue two ruble bonds totaling 10 bln. rub. / Сbonds

n 15 October, FinMin will finish to receive applications for the former USSR debt securitization./ FinMin

n VBD plans buy back 3-10 % of shares in local and foreign markets. The board can approve the decision within 2 weeks. / Reuters

Syndicated loans

n MT Development plans to enter agreement with VTB, Sberbank and Gazprombank about a syndicated loan of $ 400 mln. / CRS

n WGC-1 plans to raise a $ 250 mln. syndicated loan. / Prime-TASS

n HCFB has attracted a 3.5 bln. rub. 1-year syndicated loan at Mosprime+375 bps. / Cbonds

New coupons

n Element Leasing has set the seventh to tenth coupons for the debut issue at 16 % (+100 bps to the current levels). / Cbonds

n NOK has set the fifth to eighth coupons at 15.5 % (+320 bps. To the current levels). / Cbonds

Global markets

n The Federal Reserve System for the first time in the last 95 years has expanded the types of assets the banks can use as collateral borrowing money. Also, 10 largest global banks will form a $ 70 bln. "stability fund" to be used in case of lack of liquidity. The consortium has been formed by Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley and UBS. / Prime-TASS

n According to Marion Draga - the head of the Bank of Italy Financial stability forum - European banks will have to attract around $350 bln., to cover losses caused by the world financial crisis. / Prime-TASS

n Fitch lowered the Moldova rating outlook to stable and affirmed foreign currency rating at B-. / Prime-TASS

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BM__Toc209334998The storm continues

On Monday the ruble debt market was hit by another wave of sales. Gazprom A4 maturing in February 2010 went down 0.3 % on the day while the yield rose 24 bps to 8.9 %. Lukoil-03 maturing in December 2011 plunged 0.49 % returning 10.45% (+ 29bps.). The eighth issue of the Moscow area fell 0.77 % yielding 12.4 % (+31bps.).

We also have to mention that a 1-percent fall in price no longer looks unusual. RZD-06 maturing in November 2010 fell 1.02 % while the yield rose 56bps. to 10.1 %. Gazprom-controlled WGC-2 debut issue (matures in July 2010) plunged 3.34 % while the yield soared to 17.14 % (+233 bps.). The sales in WGC-2 proved short-timed. The paper is available for purchase with a 13.6% yield.

BM__Toc209334999Money market: a series of records

The money market continues to set dubious records. The aggregate liquidity provided to banks via direct REPO amounted to 326 bln. rub. yesterday. Overnight interbank rates held near the 9 % level with occasional spikes to 10%. Strains at the external market are coupled with tax payments. Banks today paid half of excise tax as well as social tax advance payments and social insurance payments. We have an information that a number of big players stopped to allocate money into REPO which was one of the reasons for yesterday''s plunge.

As we have already mentioned, the liquidity situation is very complicated but not critical. Following CBR decision to raise the operations limits, the government is ready to double the limit of budget money allocated to bank deposits (to 1 232 bln. rub. from 668 bln. rub.). This was stated yesterday by the minister of finance Alexey Kudrin. At today''s auction the FinMin will offer 75 bln. rub. at over 8 %, tomorrow - 275 bln. rub. at over 7.75 %. The banks are to return 52.7 bln. rub. borrowed earlier. The steps of CBR and FinMin are aimed at stabilizing the markets.

Natalia Kovaleva

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BM__Toc209335001BM__Toc209334717AIG to follow Lehman and Merrill?

Besides the bankruptcy of one of the oldest and largest investment bank Lehman Brothers and the decision of Bank of America to buy Merrill Lynch a big batch of problems is faced by American International Group. Yesterday it became known that the company applied to the Fed for a $ 40 bln. bridge credit. After AIG sustained losses for three quarters in a row (totaling $ 18.5 bln.), the company has raised about $ 20 bln. in capital. However, Lehman bankruptcy implies additional losses for AIG. In the last few days, CDS spread of AIG has rose (see the chart). AIG management tried to do their best to avoid rating action, but this time the agencies reacted immediately - AIG ratings were lowered by both S&P (from AA- to A-), and Moody`s (from Aa3 to A2). The ratings downgrade means additional losses for the insurer - AIG will have to pay $ 13.3 bln. as additional collateral for outstanding contracts as the result of rating action. In only a day after the end of Lehman Brothers US financial authorities are again facing a challenge of saving another financial giant whose bankruptcy could become much more damaging for the US financial system than Lehman Brothers'' bust.

The complicated situation led to a big spike of demand for UST as safe-haven assets. The yields of Treasuries fall the second day in a row. In the morning, UST-10 yield is trading at 3.37 % versus 3.7 % on Friday.

BM__Toc209335002BM__Toc209334718Russian bonds follow the negative path

Another wave of the credit crisis hit the Russian bonds. Russia''30 yield yesterday spiked to 6.27 % mark, the highest since mid-August 2007. Amid growth of demand for UST it led to sovereign spread rise of 290 bps. In the morning the bond recovered a bit: Russia''30 yield is trading at 6.04 %, while the sovereign spread is 266 bps.

Russian instruments follow the general plunge at emerging markets. On Monday, EMBI+ Russia has widened 46 bps. While EMBI+ Russia spread rose 43 bps. to 279 bps. The words of Standard&Poor`s rating agency about Russia were not over-optimistic. S&P said that "old and new geopolitical challenges seem to be diverting the country''s attention and resources from a reform agenda, and how Russia responds to this question will go a long way in determining its fortunes over the next 10 years and beyond". We think that geopolitical risks are overestimated but nevertheless they exert additional pressure on Russian bonds as compared to other EM instruments. S&P words were buried yesterday under a bigger wave of negative news.

Russian corporate eurobonds continued to move down yesterday and the majority of papers fell more than 100 bps. . Today in the morning, corporate sector showed a minor rebound following eurobonds. We saw purchases in Gazprom, Lukoil, MTS and a few banks. For instance, Газпром`37 rose 1.35% after yesterday''s plunge for 5.86 %. The yield is trading at 9.57 % after 9.7 % on Monday. Лукойл`17 rose 0.7% today after yesterday''s fall of 3.28%. The bond is yielding 9.5 % against Monday''s close of 9.6 %.

BM__Toc209335003BM__Toc209334719Fed in the spotlight

A regular FOMC meeting will start today. We do not expect any rate rise; the key importance will be attributed to the press release where the Fed is to comment the current situation at the financial markets. Market bias towards theFed rate action has changed. Now more than a half of market participants expect a 25 bps rate cute while on Friday this scenario was supported by only 10 %.

Another wave of the financial crisis was answered by the Fed by extending the number of asset classes able to be used as collaterals for lending money to banks. Such decision is made for the firs time for the last 95 years. .

Natalia Kovaleva