Kapital View – Fixed Income

Kapital View – Fixed Income

IFD Kapital, Research Department, tel.: 411-5200

21 June 2010

Market Outlook Eurobond Market This week, we do not expect major gains in the Treasury market, assuming there are no new outbreaks of Sovereign debt fears or problems in China. At the same 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 to be limited. We would continue to emphasize high-quality, low-duration issues and not chase yield.

Ruble Bond Market Due to persistently favorable external conditions and high ruble liquidity, ruble bonds may continue to rise this week. The negative effect from tax payments is most likely to be insignificant. However, in the medium term saturation of demand in the primary market and deterioration of the external situation may lead to sharp rises in ruble bond yields.

FX Market We believe that the weaker dollar and higher oil prices will provide short-term support to the ruble, which may even slightly appreciate against the basket this week. The ruble may also garner some support from tax payments although we do not think that this support will be very strong since banks have accumulated excessive funds on their accounts with the CBR

USD/RUB ▼ 31.01 -0.58 EUR/RUB ▲ 38.36 0.18 Two-currency basket value, Rb ▼ 34.31 -0.23 EUR/USD ▲ $1.2388 + $0.0276 Federal Funds Effective Rate ▲ 0.19% + 1 bp ECB Effective Refinancing Rate 1.00% - USD Libor, 3m ▲ 0.538% + 0.1 bp EUR Libor, 3m ▲ 0.661% + 0.9 bp MICEX ▲ 1368 + 2.37% RTS ▲ 1409 + 3.88% S&P 500 ▲ 1118 + 2.37% MSCI EM ▲ 953 + 3.96% UST 2 yield ▼ 0.71% - 2 bp UST 10 yield ▼ 3.22% - 2 bp Russia 30 yield ▼ 5.30% - 28 bp Spread Russia 30 & UST 7 ▼ 262 bp - 27 bp CDS Russia, 5y ▼ 178 bp - 10 bp CDS Greece, 5y ▲ 818 bp + 54 bp WTI, bbl ▲ $77.2 + 4.61% Gold, oz ▲ $1257 + 2.45% Correspondent Accounts with Bank of Russia, Rb bn ▼ 530.6 - 315.1

Deposits in Bank of Russia, Rb bn ▼ 766.9 - 93.3 MosPrime Rate, 3m ▼ 3.96% - 7 bp

Source: Bloomberg

UST 10 Yield

3.10

3.15

3.20

3.25

3.30

3.35

14-Jun 15-Jun 16-Jun 17-Jun 18-Jun

% p.a.

Russia 30

110.0

110.5

111.0

111.5

112.0

112.5

113.0

13-Jun 14-Jun 15-Jun 16-Jun 17-Jun 18-Jun

% par

US Dollar and Two-currency Basket

30.80

31.00

31.20

31.40

31.60

31.80

32.00

14-Jun 15-Jun 16-Jun 17-Jun 18-Jun34.15

34.25

34.35

34.45

34.55

34.65

34.75

34.85USD/RUB Two-currency basket value, Rb, rhs

WTI

73

74

75

76

77

78


$/bbl

Source: Bloomberg

2 21 June 2010


Eurobond Market There are a large number of factors that should influence the Treasury market this week. However, if there are no fresh outbreaks of Sovereign default fears, tremendously negative economic statistics or statements from politicians, these factors should roughly balance out, resulting in little movement in Treasury prices.

In general, events in Europe have stabilized somewhat, at least for now, and risk appetite has increased, suggesting less demand for risk-free assets. Still, we expect solid demand for Treasuries as investors realize that risks are likely to flare up again at some point in the not too distant future.

Given stability in the base asset, rising risk appetite globally should keep Russian Eurobonds well bid, but gains may be limited. Widening spreads and low activity suggest that many market participants are on vacation. In our opinion, investors should emphasize quality and not move out the curve for yield, because how long conditions will remain benign is an open question.

The Treasury is to auction $40 bn in UST2, $38 bn in UST5 and $30 bn in UST7 tomorrow, Wednesday and Thursday, respectively. While $108 bn is a lot of paper, we note that it is $5 bn less than Treasury placed during the last such cycle at 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 note was a record low).

On the other hand, the yield curve has shifted down 15 bp since the last auction, making absolute yield levels less attractive. This negative influence on demand is partly offset by inflation expectations that also declined, meaning higher expected real yields.

The market is likely to take a wait and see attitude ahead of the FOMC Interest Rate decision (Wednesday, 22:15 Moscow time). We reiterate our long-held belief that rates will not be raised this year, and are increasingly doubtful about 1H11. (The first move is likely to be from the 0-25 bp range to 25 bp, which would have little practical effect.)

If the FOMC statement replaced that need to keep interest rates low “for an extended period” with some other nuanced adjective, speculators’ expectations for rate hikes could again rise, hurting longer paper. However, as previously, we expect any such price action to be short lived, as the economy and unemployment will not allow the Fed to hike rates any time soon.

The housing market will also remain in focus as Existing (tomorrow, 18:00) and New Home Sales (Wednesday, 18:00) are announced. Data are for May, the first month without the homebuyer tax credits. Major declines should help Treasuries as they would be more evidence that rates cannot be raised any time soon. In this regard, financials and guidance from Lennar (Thursday, bmo) and KB Home (Friday, bmo) will also be interesting.

Target and Money Market Rates

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10

Effective Rate FedFunds Target T-Bills, 3m% p.a.

US Treasuries Yield Curve

-2 -1

-67 -70

0 -2-2-2

-43-50-48

-62

0

1

2

3

4

5

2 3 5 7 10 30-90

-70

-50

-30

-10

10

week change, bp YTD, bp% p.a.

Issue

UST Yield Curve Steepness & TIPS-spread

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10

UST10-UST2 spread, ppt TIPS-spread, ppt

Weekly Corporate Leaders & Laggards Issue YTW Price,% Chng, bp Gazprom 7.288% 8/2037 ▲ 7.37% 99.0 375 TNK-BP 6.625% 3/2017 ▲ 7.05% 97.8 338 Transcap. 10.514% 7/2017 ▲ 11.35% 98.1 324 TNK-BP 7.25% 2/2020 ▲ 7.43% 98.8 238 Russia 11% 7/2018 ▲ 5.12% 137.0 225 Evraz 9.5% 4/2018 ▲ 9.27% 101.3 225 TMK 5.25% 2/2015 ▲ 7.06% 94.7 225 Evraz 8.25% 11/2015 ▲ 8.36% 99.5 220 Eurasian Development Bank 7.375% 9/2014

▲ 6.09% 104.4 217 Vimpelcom 8.25% 5/2016 ▼ 7.45% 103.7 -19 IIB 9% 7/2010 € ▼ 262.87% 91.6 -25 Russtand Bank 8.485% 6/2010 ▼ 24.80% 99.8 -25 Gazprom 6.212% 11/2016 ▼ 6.07% 100.8 -25 St.Peterburg Bank 10.5% 7/2017 ▼ 11.25% 99.2 -34 Nomos Bank 9.25% 12/2012 ▼ 6.93% 105.2 -36 MBRD 8.875% 3/2016 ▼ 8.47% 100.3 -62 PSB 12.5% 1/2018 ▼ 8.44% 109.3 -108 Gazprom 9.625% 3/2013 ▼ 6.73% 107.0 -350

Source: Bloomberg, Kapital

3 21 June 2010


Among other important data we would note Durables (Thursday, 16:30). Last month, an unexpected decline in orders ex-Transportation lent some support to bonds. Also, the weekly unemployment claims bear watching since they have been high and higher than expected for several weeks.

The German IFO Surveys (tomorrow, 12:00) are expected to show some deterioration m-o-m, no doubt due to problems in southern Europe and weakness in the euro. EU PMI data (Wednesday, 12:00) are mostly expected slight weaker. These data are more likely to affect the euro/dollar pair than Treasuries.

One wildcard is the G20 summit June in Toronto this weekend. On Saturday night, the Chinese central bank said that it would allow the renminbi exchange rate to fluctuate after it has remained unchanged for two years. Any appreciation against the dollar is likely to be very gradual, if at all. This move is probably to deflect criticism from the US, especially from politicians facing reelection in November. In all probability, discussions will take place behind the scenes, and no public statement will be market moving, as is usually the case at such summits. (We also do not expect much from the G8 summit on Friday and Saturday.)

Rising risk appetite can be seen in global equity markets, most of which turned in two solid weeks of gains after languishing for six weeks. Commodities have mostly gained although performance has been uneven. Oil has performed well, jumping 4.6% last week to $77.18/bbl of WTI. We think that crude looks set to make at run $80/bbl. This should enhance the appeal of Sovereign Eurobonds.

Last week, the benchmark Russia 30 rose 1.15% to 113% of face, driving the yield down to 5.32%. The UST7 yield was unchanged at 2.68%, narrowing the spread to the Russian benchmark to 264 bp. If risk appetite and oil prices remain constructive, we think Russian bonds will extend gains this week.

Following the Sovereign, Russian corporates added 1-1.5%. Now that risk aversion has faded somewhat, issuers are rushing to tap capital markets. Last week, MTS placed $750 mn 10-year bonds to yield 8.11%. Demand was strong, and the issue immediately jumped to 101.69% of face in secondary trading and ended the week at 102.16%. We expect more placements in the very near future, including some of those issues that were postponed in May-early June.

CDS & Russa 30 Spread

100

150

200

250

300

350

400

450

Sep-09 Nov-09 Jan-10 Mar-10 May-10

CDS Russia 5y, bp Spread Russia 30 & UST7, bp

US Treasury & Bund Spreads

-250

-200

-150

-100

-50

0

50

100

Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10

2y 10y Libor 3mbp

Source: Bloomberg

EMBI+ Index Chng, % Spread, bp Chng, bp Venezuela ▲ 560.8 6.18 1134 -106 Argentina ▲ 111.0 5.92 743 -65 Brazil ▲ 785.5 1.64 222 -17 EMBI+ ▲ 517.5 1.51 309 -19 Ecuador ▲ 484.3 1.33 962 2 Colombia ▲ 393.4 1.31 215 -15 Indonesia ▲ 138.1 1.27 240 -19 Mexico ▲ 456.6 1.26 168 -12 Peru ▲ 751.6 1.22 199 -11 Russia ▲ 565.6 1.15 248 -19 Turkey ▲ 356.1 1.08 253 -11 S.Africa ▲ 187.8 1.03 184 -17 Panama ▲ 861.7 0.78 202 -6 Bulgaria ▲ 769.8 0.36 337 -22 Phillipp ▲ 327.1 0.35 234 -3 Ukraine ▲ 280.5 0.19 569 0

Source: Reuters

4 21 June 2010


Ruble Bond Market Some calming of investor fears concerning the situation in Europe, including due to successful placement of Spanish bonds, stoked risk appetite that will probably support ruble bonds this week. Strong liquidity with overnight rates at 2-3% p.a., 3-month MosPrime at 3.96% as of 18 June, and the impressive amount on correspondent accounts and deposits of banks at the CBR should prevent ruble bond yields from rising. The negative effect from payment of a third of 1Q10 VAT on 21 June, as well as payment of excise duties and the mineral extraction tax on 25 June, should not be significant, in our opinion.

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 unlikely to create much excitement. Given such high ruble liquidity, market participants’ attention is focused on investment alternatives rather than on sources of financing. Last week, most of the buying took place in the first tier. In general, prices returned to mid-April levels, recouping losses of the May-June correction. For example, Gazpromneft series 5 and 6 are very close to face value (99.8%). However, there are several issues such Sibmetinvest bonds that still have not returned to pre-correction price levels.

In the near future, interest in ruble bonds should be spurred by renewed activity in the primary market. The placement schedule is very dense this week: Sitronics is to place Rb 2 bn 3-year bonds on 22 June, OGK-5, an Enel sub, is placing Rb 4 bn 3-year bonds on 23 June, Alrosa is to place two issues of 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.

Also, on 23 June, there is to be a Rb 20 bn reopening of 1-year OFZ 25074. This should support demand for government bonds. One should not forget, however, that demand saturation in the primary market may occur very soon, and together with the high risk of a correction in oil and external market deterioration (on publication of European banks stress tests results or details of a global tax on financial institutions) may trigger a medium-term surge in ruble bond yields.

But for now, excess ruble liquidity should ensure demand even for issues offering slightly lowered yield levels, for example series 21 and 23 series 5-year Alrosa bonds for Rb 8 bn and Rb 7 bn, respectively, to be placed this week. The target coupon rate of 8.25-8.75% on series 21 issue indicates a yield to a 3-year put of 8.51-9.04%, while the target coupon rate of 8.75-9.25% on series 23 issue indicates a yield to maturity of 9.04-9.58%.

The lower boundary of the yield to put range indicated by the underwriters suggests a premium to Gazprom and Russian Railways yield curves of 100-110 bp. At the same time, the Alrosa Eurobond maturing in 2014 trades at a premium to the Gazprom curve of over 200 bp.

Ruble Liquidity

800900

1000110012001300140015001600170018001900

Feb-10 Mar-10 Apr-10 May-10 Jun-102%

3%

4%

5%Mosprime o/n, rhsCorrespondent Accounts and Deposits with CBR, Rb bn

Ruble NDF Yield Curve

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0 2 4 6 8 10 12

3m ago week ago current

Months

Money Market Rates

2%

3%

4%

5%

6%

7%

8%

9%

Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10

Mosprime 3m NDF, 3m

Weekly Corporate Leaders & Laggards Issue YTM/YTP Price, % Chng, bp NK Alians-01 ▲ 13.47% 101.00 350 MDM Bank BO-01 ▲ 8.07% 110.55 275 Moscow-48 ▲ 7.56% 96.00 194 BALTINVESTBANK 01 ▲ 8.79% 102.00 150 Yakytskenergo-02 ▲ 7.90% 103.75 150 Moscow-63 ▲ 6.58% 126.50 127 NLMK BO-05 ▲ 7.13% 108.00 112 Moscow-56 ▲ 7.30% 100.75 107 Moscow-61 ▲ 6.41% 123.40 87 MBRR 02 ▼ 7.36% 101.00 -30 Mosenergo-02 ▼ 7.12% 101.00 -30 Vneshprombank 01 ▼ 9.04% 102.00 -35 TGK-2 01 ▼ 4.36% 102.60 -40 MTS 04 ▼ 5.95% 109.20 -40 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


5 21 June 2010


On 25 June, Rosbank is to place Rb 5 bn 3-year exchange bonds with a 7.94%-8.35% coupon that indicates an attractive 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 outstanding worth Rb 5 bn each and placed in November 2009 for four and five years, respectively, trade at a 140 bp premium. Furthermore, there are practically no bank ruble bonds in the 2-year habitat. There are MDM Bank exchange bonds that may be an alternative to the new issue as they were also issued by a private bank with a similar amount of assets, but offer no yield pickup despite the added duration.

In our opinion, proceeds are first and foremost to expand the loan book. First, Société Générale, which controls Rosbank, plans to generate some 15% of foreign retail business income in Russia in two years. However, in 1Q10, the Russian banking segment generated a €24 mn IFRS loss. Based on RAS, Rosbank generated a Rb 2.6 bn net loss in 1Q10 after losing Rb 10.3 bn last year. Second, it should be easier for Rosbank to expand its loan book after receiving in February a Rb 4.7 bn subordinated credit from Société Générale that increased its capital adequacy to 14.1% as of end-1Q10 from 12.9% at yearend. This also allowed it to decrease funds on interest-free accounts with the CBR while observing the regulator's requirements, and eliminate any liquidity problems.

Until 25 June, the Wimm-Bill-Dann book for placement of Rb 5 bn 3-year exchange bonds will be open. The preliminary 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.

CPI & Refinance Rate

4%

6%

8%

10%

12%

14%

16%

Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10

CBR Refinance Rate, % p.a. Russia CPI y-o-y, %

Russia Gold and FX Reserves

350

400

450

500

550

600

May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10

$ bn

Source: Bloomberg

6 21 June 2010


FX Market In the beginning of June, when the euro/dollar pair was renewing its long-term lows, both news and investor sentiment concerning the euro were so awful that even the tiniest pivot point for the pair seemed unimaginable. Nevertheless, we are now observing a very strong rebound in the euro with a gradual testing of key levels rather than the emotional spikes seen during the previous correction. Even more important, in our opinion, is that the euro is changing both its trading behavior and its reaction to economic news. We have seen nothing like this in the euro this year. In our opinion, this may help the euro in the short term to continue retracing to at least the previous May correction area around $1.26-1.27. According to CFTC, as of 15 June, the net non-commercial short position in the euro decreased more than 40%, basically due to short covering with only minor opening of new longs. This means that the current euro rebound is supported mainly by speculative shorts covering and traders are not in a hurry to open longs in the euro yet. This strongly suggests that the current rebound will not be long-lived. The favorable technical picture of other currencies that closed above the double bottom vs. the dollar is indirect evidence that the uptrend in the euro may continue in the short term. For example, GBP/USD closed the week above the key level of $1.48; AUD/USD successfully broke $0.85 and, more importantly, $0.86, where resistance was even stronger. Nevertheless, EUR/JPY and GBP/JPY failed to break through the double bottom, mostly due to yen strengthening. Despite increased risk appetite and strong global equity markets last week, the yen rose vs. the dollar, most likely due to Japanese government plans to reduce the debt and budget deficit. Furthermore, over the weekend China announced its intention to make the renminbi exchange rate more flexible. This could also be a short-term positive for the yen although gains should be limited. Overall, the Chinese decision should be considered as a short-term factor supportive of global risk appetite. Last week, investor fears about EU Sovereign debt faded a little after a number of satisfactory bond placements and the desire of the EU leaders to disclose the results of the bank stress tests. For example, Spain placed €3 bn 10-year bonds with a high bid-to-cover ratio. Also, there was good demand for 30-year Spanish bonds. While noticing some positive short-term signals for the euro, we do not think that it has reached its long-term bottom as we expect another wave of risk aversion due to increased fears concerning stability of the current model of economic growth in China and general slowdown in global GDP in 2H10. In any event, we believe that a weaker dollar and higher oil prices will provide short-term support to the ruble, which may even gain slightly vs. the basket this week. The ruble may also receive some support from tax payments (a third of 1Q10 VAT 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.

Oil & Dual-currency basket ($0.55 and €0.45)

3132333435363738394041

50 55 60 65 70 75 80 85 90

previous (from February 2009)current

WTI, $/bbl

EUR/USD

1.19

1.20

1.21

1.22

1.23

1.24


$

Euro Non-Commercial Short/Long Contracts

-150

-100

-50

0

50

100

150

200

Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10

short long net positionthousands of contracts

Currency Performance against US Dollar

-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%

EUR NOK GBP CHF RUB AUD NZD BRL JPY CAD

week change YTD

Source: Bloomberg

7 21 June 2010


Sector Yield Curves OFZ & City of Moscow

25066

25070 -24

46002 5

25063

25064 10

26199 15

25073 10

25069 10

25067 10

26198 8

25072 15

25065

2620026201 9,06

25068 10,01 26202 15

25071 -9,99

46014 30 46017 20 46021

46018 46022Moscow-39 16

Moscow-48 194

Moscow-49 36

Moscow-54

Moscow-56 107

Moscow-58

Moscow-61 87

Moscow-62 43

Moscow-63 127

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

0 364 728 1092 1456 1820 2184 2548 2912 3276

Duration, daysSuperscript indicates price change, bp

Yield to maturity/put, % p.a.

OFZ yield curve

Source: Kapital

Oil & Gas

Lukoil-04

Lukoil NK BO-5Lukoil NK BO-4 5Lukoil NK BO-3 5Lukoil NK BO-2 5

Lukoil NK BO-1 10

ITERA FINANS 01

Gazprom-A13 60

Gazprom-A11 60

Gazprom-A9 21

Gazprom-A8 38

Gazprom neft BO-06 70Gazprom neft BO-05 50

Gazprom neft 04

Gazprom neft 03 20

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

0 364 728 1092 1456

OFZ yield curve

Source: Kapital

8 21 June 2010


Sector Yield Curves Telecoms

UTK-05 obl. 25

UralSvazInform-ser.07 63

UralSvazInform BO-01

Tattelekom ser. B

Sibirtelecom 08

SibirTelekom-06 -10

MTS 05 25

MTS 04 -40

MTS 01 -1

DalSvyaz-5 -170

VK-Invest 03

VK-Invest 01 35

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

0 364 728 1092

OFZ yield curve

Source: Kapital

Utilities

Yakytskenergo-02 150

FSK EES 04

TumenEnergo 02 15

TGK-2 01 -40

TGK-1 02

TGK-1 01

OGK-5 obl. -75

Enel OGK-5 BO-02

OGK-2 01 -8

MOEK 01 634

Mosenergo-03 70Mosenergo-02 -30

Mosenergo-01

Lenenergo 03

Kubanenergo 01 -60

GidroOGK-01

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

0 364 728 1092

OFZ yield curve

Source: Kapital

9 21 June 2010


Sector Yield Curves Metallurgy

CHTPZ 3

TMK-03 25

SIBMETINVEST 02SIBMETINVEST 01

Severstal BO-04Severstal BO-02 5

Severstal BO-01 19

NLMK BO-06 50

NLMK BO-05 112NLMK BO-01 -1

MMK BO-05 37

MMK BO-02 30

Mechel BO-03 5Mechel BO-02 60

Mechel BO-01 5

Mechel 5 24

Mechel 4

EvrazHolding Finans 03 35EvrazHolding Finans 01

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

0 364 728 1092 1456

Кривая доходности ОФЗ

Source: Kapital

State Banks

Rosselhozbank 11 16Rosselhozbank 10

Rosselhozbank 09 74Rosselhozbank 08 75

Rosselhozbank 07 15

Rosselhozbank 03 25

Rosselhozbank 02

Evraziyskiy bank razvitiya 03 25

Gazprombank

VTB24 1-IP 10

VTB24 04 -10

VTB 24 01 15

Bank VTB-05

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

0 364 728 1092 1456

OFZ yield curve

Source: Kapital

10 21 June 2010


Financial Sector

Petrokommerzbank-5MDM Bank BO-01 275

MDM Bank-07Promsvyazbank-5

Ak Bars bank-04 9697MBRR 05

AKB SKB BO-04 5

Reiffeisenbank 04 10

Ak Bars bank-03 11

HCF bank-05 obl.

MDM Bank-05 -21

Sankt-Peterburg-BO-01 -4

MKB 08 25

Severnaya Kazna-Bank-02

NOMOS-9

KB Renessanase Kapital- 03

TatfondBank-04

NS-finans 01

Rosbank A5 -19Rosbank A3 -5

MKB 05 40

Pervobank BO-01

BALTINVESTBANK 01 150

Moy Bank 5 -2

Zenit BO-01

MBRR 02 -30

TatfondBank-05 10

PCHRB-Finans 01

Vostochniy Express Bank BO-01

MBRR 04 -5

TatfondBank-06

Petrokommerzbank-7 -6

NOMOS-8 -25

Russkiy Standart-6

TatfondBank-07

Zenit-05 -9Master Bank 03 8

Vneshprombank 01 -35

Hanty-Mansiiskii bank 01

MBRR 03Russkiy Standart-8

HCF bank-04 obl.

KB Renessanase Kapital- 02 25

Investtorgbank 4

Sudostroitelniy bank-3

Russbank 03 -5

NOMOS-11 -8Petrokommerzbank-4 -13

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

0 364 728

OFZ yield curve

Source: Kapital

11 21 June 2010


Eurobond Yields: State Banks

US Treasuries 20 12.5

US Treasuries 17




Russia 28 100

Russia 20 120.1Russia 30 175

Russia 18 225

Russia 15 133.3

Minfin 11 10.8

VTB 18 64.1

Rusag 18 62.6

Rusag 17 162.6Gazprombank 15 81.4VTB 35 23.6

VTB 15 102.2

Rusag 14 144.5

Rusag 14 73.5

Sberbank 13 23.6

Sberbank 13 23.4

Rusag 13 76.5

Sberbank 11 14.1

VTB 11 26.7

Rusag 16 34.9

Gazprombank 11 -3.8

Rusag 10 5.9

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

0 364 728 1092 1456 1820 2184 2548 2912 3276 3640 4004 4368 4732

Durations, day sSuperscript indicates price change, bp

YTW, p.a.


12 21 June 2010


Eurobond Yields: Financial Sector

US Treasuries 17US Treasuries 15 7.8



Russia 30 175

Russia 18 225

Russia 15 133.3

Minfin 11 10.8

Nomos Bank 15 145

Russtand Bank 15 3.8

Bank of Moscow 15 46.3

Alfa Bank 15 53.5

PSB 15 29.2

Eurasian Development Bank 14 217.3

Alfa Bank 13 40


Credit Europe Bank 13 6.2

PSB 13 81.6Nomos Bank 12 -36.4

CB Ren.Capital 13

AK Bars 12 15.5

PSB 18 -108.3

Transcap. 17 323.6

Alfa Bank 12 40

Rosbank 12 -8.7

Bank of Moscow 17 -8PSB 12 30.3

St.Peterburg Bank 17 -34.4

Alfa Bank 17 5

URSA Bank 11 17.6

Russtand Bank 16 45

PSB 11 13.5

Nomos Bank 16 8.3

MDM Bank 11 18

Transcred. 11 -5.5

AK Bars 11 -4.6HCF Bank 11 -4.4

Russtand Bank 11 49.3

Renaissance 11

MBRD 16 -62.1

Alfa Bank 15 0.6

Bank of Moscow 10 -11.3


Russtand Bank 10 -1

PSB 10 -0.2

Promstrojbank 15 -4.3

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

0 364 728 1092 1456 1820 2184


13 21 June 2010


Eurobond Yields: Oil & Gas




US Treasuries 17


Minfin 11 10.8

Russia 15 133.3

Russia 18 225Russia 30 175 Russia 20 120.1

Russia 28 100

Gazprom 13 -350

Gazprom 13 73.4

Gazprom 13 97

Gazprom 13 41.6

Gazprom 14 95.7

Gazprom 16 -25

Gazprom 18 192.1

Gazprom 19 175Gazprom 20 39.4 Gazprom 22 200

Gazprom 34 155.5Gazprom 37 375

TNK-BP 11 -13.4

TNK-BP 12 6.7

TNK-BP 13 -4.2

TNK-BP 15 71.2

TNK-BP 16 150TNK-BP 17 337.5

TNK-BP 18 115 TNK-BP 20 237.5

Lukoil 14 8.6

Lukoil 17 49.2

Lukoil 19 215

Lukoil 22 90.8

Gazprom 13 -2

Transneft 14 135

ALLIANCE OIL 14 -0.9

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

0 364 728 1092 1456 1820 2184 2548 2912 3276 3640 4004 4368 4732


14 21 June 2010


Eurobond Yields: Non-Financial Sector

US Treasuries 17




Russia 30 175

Russia 18 225

Russia 15 133.3

Minfin 11 10.8

Vimpelcom 18 76.5

Vimpelcom 16 -19.2

Vimpelcom 13 3.1

Vimpelcom 11 15

RuRAIL 17 116.1

Evraz 18 225

Evraz 15 220

NKNC 15 12.5

Sinrk 15 -6.9Alrosa 14 76.5

KZOS 15 150

Severstal 14 51

Severstal 13 46.2

Evraz 13 31.6

TMK 15 224.9

Nov.Port 12 74.5

Raspad. 12 46.8

Euchem 12 48.5

MTS 12 41.1

TMK 11 106.7

Sistema 11 4.6

MTS 10 3.2

KUZBAS 10 -0.2

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

0 364 728 1092 1456 1820 2184 2548


15 21 June 2010


Primary Market Recent Corporate Bond Placement Results Auction Date Issue Put / Maturity,

years Issue Size, Rb

mn Bid, Rb mn Yield to Put,

p.a. Yield to

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,

Rb mn Bid, Rb mn Placed Value, Rb

mn Yield (at average

weighted price) Premium, bp

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-

Cover Prev Avg Indirect

Bidder Prev Avg

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 Date Issue Coupon Size, Rb

mn 21-Jun LenSpecSMU 01 16.00% 78.9 MOIA-01 9.00% 40.4 Promsvyazbank-6 10.25% 255.6 SB-Finans 01 1.00% 3.7 SB-Finans 01 put 1,500.0 22-Jun AvtoVAZ-3 9.60% 239.4 AvtoVAZ-3 maturity 5,000.0 Agrokom 13.00% 97.2 Agrokom put 1,500.0 Bashneft ANK 01 12.50% 935.0 Bashneft ANK 02 12.50% 935.0 Bashneft ANK 03 12.50% 1,246.6 Blagoveshchensk-02 9.25% 3.5 Generir. compani 01 12.00% 119.7

Source: CBR, Kapital

Upcoming Federal Loan Bond (OFZ) Payments Date Issue Coupon Size, Rb mn 23-Jun OFZ 26202 11% 1,116.8 30-Jun OFZ 25065 12% 1,376.3 7-Jul OFZ 25066 10% 1,052.0 14-Jul OFZ 26199 6% 612.8 OFZ 46003 10% 929.8 OFZ 46003 redemption 18,648.8 21-Jul OFZ 25059 6% 623.6 OFZ 25064 11% 1,335.2 OFZ 25067 11% 1,267.7 OFZ 26200 6% 760.5 OFZ 26201 6% 226.4 OFZ 46022 7% 1,055.5 28-Jul OFZ 25072 7% 1,517.6

Source: CBR, Kapital

16 21 June 2010


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%

17 21 June 2010


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