Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<p>In this week’s Alpha Bites, we recommend receiving the 2-year rate vs paying the 5-year rate in Russia while keeping a paying bias. Russia’s 2s5s curve slope is currently the flattest among liquid EM countries and the only one that is inverted. The flatness was driven by sharply rising inflation leading to aggressive rate hikes by the central bank. If the central bank delivers the rate hikes of over 100 bp that are priced in, then monetary policy would have switched to tightening from the earlier accommodative stance, which combined with inflation peaking in H2 should lead to curve steepening in our view.</p>

In this week’s Alpha Bites, we recommend receiving the 2-year rate vs paying the 5-year rate in Russia while keeping a paying bias. Russia’s 2s5s curve slope is currently the flattest among liquid EM countries and the only one that is inverted. The flatness was driven by sharply rising inflation leading to aggressive rate hikes by the central bank. If the central bank delivers the rate hikes of over 100 bp that are priced in, then monetary policy would have switched to tightening from the earlier accommodative stance, which combined with inflation peaking in H2 should lead to curve steepening in our view.

Alpha Bites: A 2s5s Steepener in Russia with Paying Bias

Russia

A vanilla interest rate swap us an agreement between two counterparties to exchange cashflows (fixed vs floating) in the same currency. This agreement is often used by counterparties to change their fixed cashflows to floating or vice versa. The payments are made during the life of the swap in the frequency that is pre-established by the counterparties.

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RUB 5Y (RRSWM5 CURNCY)

Alpha Bites: A 2s5s Steepener in Russia with Paying Bias

We recommend a steepener in Russia as short-end rates should come off once the central bank indicates that its tightening cycle is over, which in...

Gautam Jain, PhD, CFA

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