Fixed Income Weekly (November 14, 2016)

 

Macro & politics update

  • On November 11, 2016, Fitch Ratings upgraded Ukraine's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs), the issue ratings on Ukraine's long-term senior unsecured foreign- and local-currency bonds to 'B-' from 'CCC'.
  • Ukraine’s foreign reserves declined by 0.5% m/m (or by USD 74 mn) in October 2016 and amounted to USD 15.5 bn by November 1, 2016.
  • Consumer prices grew by 2.8% m/m in Ukraine in October. Consumer prices grew by 9.4% ytd in January-October. In annual terms inflation in October accelerated to 12.4% y/y.
  • On November 11, 2016, the Ukrainian transport Minister Volodymyr Omelian and the EIB Vice-President Vazil Hodak signed an agreement about the extension of EUR 200 mn loan to Ukraine in the framework of the EIB Urban Public Transport Financing program.

 

Eurobonds overview

The avg. prices on the medium-term Ukraine’s sovereign Eurobond Ukraine-2020, Ukraine-2021, and Ukraine-2022 decreased by 1 cent on avg. last week, and were traded at 96.6 cents, 95.9 cents, and 95.1 cents respectively. Ukraine-2023 lost 1.3 cents to trade at 94.2 cents, whereas the longer-term Ukraine-2025 and Ukraine-2026 decreased by an avg. 1.7 cents to be traded at 93.3 cents and 92.6 cents correspondingly. The shortest Ukraine-2019 remained unchanged at 99.2 cents, while the longest Ukraine-2027 gained 0.6 cents to trade at 94.6 cents. The sovereign Eurobond prices negatively reacted to the results of the US presidential elections, with the Ukrainian leadership seen to have wrongly positioned itself against the future US President during the campaign. Moreover, the electoral agenda of the new US President is seen to threaten diverting international capital flow from emerging market and Ukraine included. Nearly all corporate Eurobond picks lost in prices last week, save DTEK-18 which gained 50 bps in prices. Privatbank-18 and Ukrlandfarming-18 lost 21 bps respectively, whereas Ukrainian Railway-18 and Privatbank-21 lost 2 pts and 1.2 pts correspondingly. The price development most likely mirrored the drastic deterioration in the Hryvnia’s position, risking to complicate the liquidity and debt position of Ukrainian companies.

Money markets

Over the last week, the average USD/UAH exchange rate grew by 0.1% w/w to UAH 25.58, closing at the level of UAH 25.63 on Friday. The average daily FX turnover on the interbank market decreased by 28.6% w/w to USD 137 mn, while FX trading volume amounted to USD 112 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 6.4% w/w or by UAH 2.4 bn to UAH 36 bn. Last week, the shorter-term Kievprime overnight (o/n), KIevprime 1W, Kievprime 1M, and Kievprime 2M declined by 0.9 ppt on avg. to be quoted at 13.3%, 14.7%, 16.6%, and 18.0% respectively. The longer-term Kievprime 3M, Kievprime 6M, and Kievprime 1Y gained 0.11 ppt on avg. and were quoted in the range of 18.6%. NBU extended UAH 1.0 bn refinancing to banks during the week (UAH 768 mn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 43.7 bn (UAH 54.4 bn during the previous week).

Local bond markets

The Finance Ministry made no placement of domestic bonds last week. NBU, local banks, and non-resident players reduced their holdings of gov. domestic bonds by 0.4% on avg. by UAH 1.5 bn (-0.4% w/w), 962 mn (-0.6% w/w), and UAH 18 mn (-0.2% w/w) respectively. Non-bank corporates increased their holding by UAH 73 mn (+0.5% w/w). Secondary market activities for gov. bonds were distributed as follows: short-term bonds accounted for 9% of contracts and 8% of market volume, medium-term bonds made 91% and 92% correspondingly. USD denominated bonds represented 39% of contracts and 1% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 4.0 bn, compared with UAH 1.9 bn for the previous week.