Fixed Income Weekly (November 07, 2016)


Macro & politics update

  • Notwithstanding the one digit inflation environment which unfolded over the latest six months, the NBU sees inflation to be in line with its earlier inflation target of 12% eop, as well as its medium term 8% eop in 2017, and 6% eop in 2018. The NBU keeps its GDP growth forecast for 2016 unchanged at 1.1%, while slightly downgrading the expectations for 2017 and 2018 to 2.5% and 3.5% respectively.


Eurobonds overview

The avg. prices on the short-term Ukraine’s sovereign Eurobond Ukraine-2019 and Ukraine-2010 increased over the last week by 0.2 cents to stand at 99.2 cents and 97.6 cents respectively. Ukraine-2021 and Ukraine-2024 lost 0.1 cents and were traded at 96.7 cents and 95.1 cents correspondingly. Ukraine-2022 and Ukraine-2025 lost 0.3 cents to be traded at 96 cents and 94.9 cents. Ukraine-2023, Ukraine-2026, and Ukraine-2027 remained unchanged at an avg. 95.5 cents, 94.4 cents, and 94 cents. A shift of market preferences towards the short-term sovereign Eurobonds might have taken place as high uncertainties remain as to the medium and long-term economic prospects of the country, witnessed by the overall downgrade of the country’s economic forecast. On the corporate Eurobond’s side, over the last week, DTEK-18 gained 50 bps in prices, whereas Ukrainian Railway-18 lost 20 bps. Other our picks remained unchanged. The gained of DTEK-18 came amidst discussions about securing coal supply to Ukraine’s power generating companies from the rebel territories, and energy security during the winter period. Ukrainian Railway may have lost as the conflict between the management of the company and the transport ministry has come public, demanding the involvement of the Prime-Minister in defense of the company.

Money markets

Over the last week, the average USD/UAH exchange rate mostly remained unchanged at UAH 25.57, closing at the level of UAH 25.58 on Friday. The average daily FX turnover on the interbank market decreased by 40.7% w/w to USD 187 mn, while FX trading volume amounted to USD 179 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 9.9% w/w or by UAH 4.1 bn to UAH 38 bn. All Kievprime indexes declined last week, save the Kievprime 6M which gained 0.2 ppt to be quoted at an avg. 18.7%.The short-term Kievprime overnight (o/n), Kievprime 1W, and Kievprime 1M lost 0.6 ppt on avg. to be quoted at 13.5%, 14.8% and 16.7% respectively. The longer-term Kievprime 2M, Kievprime 3M, and Kievprime 1Y lost 0.1 ppt on avg and were quoted at 18.1%, 18.2%, and 18.7% correspondingly. NBU extended UAH 768 mn refinancing to banks during the week (UAH 24 mn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 54.4 bn (UAH 43.8 bn during the previous week).

Local bond markets

The Finance Ministry made no placement of domestic bonds last week. NBU and non-bank corporates reduced their holdings of gov. domestic bonds by UAH 795 mn (-0.2% w/w) and UAH 95 mn (-0.7% w/w) respectively, whereas local banks and non-resident investors increased their holdings by UAH 189 mn (+0.1% w/w) and UAH 26 mn (0.2% w/w) correspondingly. Secondary market activities for gov. bonds were distributed as follows: short-term bonds accounted for 15% of contracts and 3% of market volume, medium-term bonds made 85% and 97% correspondingly. USD denominated bonds represented 35% of contracts and 2% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 1.9 bn, compared with UAH 3.2 bn for the previous week.

Corporate news

  • Metinvest’s crude steel output grew by 6% y/y, Iron ore concentrate output fell by 4% y/y in 9M2016
  • FUIB reported USD 11 mn profit in 9M2016
  • Privatbank reported USD 23 mn net profit in 9M2016