UFS Investment Company - Daily review of the debt markets, Jul 23, 2012.

Markets

On Friday Russian Eurobonds were mainly in decline due to new negative news from Europe. Decline in the sovereign sector totaled 0.3% on average, whereas the fall in most corporate Eurobonds didn't exceed 0.1%.

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American indices settled down on Friday. S&P500 slid 1.01%; Dow Jones dropped 0.93%. Brazilian index Bovespa decreased 2.08%.

European indices closed down as well. FUTSEE 100 lost 1.09%, DAX edged down 1.90%, French CAC 40 went down 2.14%.

The contract for Light Sweet closed down 0.90% as well as Brent. Today Light Sweet is traded at $90.2 (-1.78%); Brent is $105.31 (-1.42%). The spread between Brent and Light Sweet slightly narrowed to $15.11.

Precious metals trade on a negative note. Gold is $1576.15 per troy ounce; white metal dipped to $27.02. AU/AG ratio slightly rose to 58.33.

Key Statistics Today:

Cabinet Office Monthly Economic Report (Japan);

Chicago Federal National Activity Index (16:30);

Eurozone Consumer Confidence (18:00).

News and Statistics

Germany

Inflation in Germany continues rapid decelerating: producer prices added just 1.6% in June which is worse than 2.1% growth in May. Just a year before producer price growth was 5.6% y/y. In June producer prices declined 0.4% m/m.

Russian Eurobonds After a few weeks of relative slackness European debt market entered the new phase of aggravation. On Friday fears suddenly grew over Spain after news came that one of the largest Spanish regions,Valencia, will probably request financial aid from the Spanish government in the volume of 18 billion

euros, since it is unable to service its debt. It made the market worried that the Spanish government will probably have to ask EU aid not only for banking system recapitalization but also for budget financing.

As a consequence, EUR/USD dropped to the two-year minimum of 1.2094 which caused a selling wave in stock and debt emerging markets. Russian sovereign Eurobonds responded to the negative news with sharper dynamics than

corporate bonds. Russia-30 lost 0.45% dipping to 124.0% of the nominal. 5-year Russian CDS cost rose 7 b. p. to 192 b. p.

Prices of corporate Eurobonds changed insignificantly with decline not exceeding 0.1% in most bonds. However, some long issues reacted to the external negative. Thus, Vimpelcom-18 and Vimpelcom-21 lost about 0.4%. In the oil and gas

sector LUKOIL underperformed, notable Lukoil-17 and Lukoil-20 went down 0.3%. Long-term bonds of Severstal, Sberbank as well as MTS-20 decline by more than 0.2%.

On Monday morning negative background prevailed in the market. Brent decreased by more than 2.0% on the negative news from Europe and fears of further Chinese economic slowdown. European stock markets opened with a more than

1.0% decline, while Russia-30 plummeted 0.8% in the morning. Evidently, today Russian Eurobonds will close with a deep collapse. The negative dynamics is likely to persist during the week.

Foreign Bonds

Europe

As we mentioned above, fears of probable Valencia's need for the government's aid for debt service triggered decline in most markets on Friday. Besides, it caused a drastic growth of Spanish bonds' yields. Thus, the yield on Spanish 10-year

shot to 7.5% (!), which is the all-time maximum since the moment of the country's entrance in the currency union. Meanwhile, the yields on 2-year bonds of Germany, Netherlands and Switzerland got into the negative territory reflecting the flight to quality.

It is not only Spain that raises concerns - Greece is worrisome again. Troika auditors will arrive to Athens on Tuesday to check financial system and the reform implementation. It is already clear that Greece didn't manage to achieve the target readings and carry out the necessary reforms owing to deep recession and political uncertainty in May-June. Mass media report the country will need additional budget infusions of 10-50 billion euros. Earlier IMF officials announced that they aren't; going to allot more funds than agreed by now.

(More: http://reports.aiidatapro.com/brokers/UFSen/23.07.2012.pdf)

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