Fixed Income Weekly (December 12, 2016)

 

Macro & politics update

  • Consumer prices grew by 1.8% m/m (12.1% y/y) in November. Food price increase slowed to 1% m/m (3.4% y/y). Utilities’ prices increased by 5.3% m/m (47.2% y/y). The prices on transport services and items increased by 1.1% m/m (+10.5% y/y). Year-to-date, the consumer inflation accelerated to 11.4% ytd (14.1% y/y) in January-November, 2016. Food prices grew by 1.7% ytd (9.5% y/y), utilities by 47.2% ytd (33.9% y/y), transport services and goods by 10.6% ytd (6.1% y/y) in eleven months.
  • Ukraine’s foreign reserves contracted by 1.6% m/m in November, and amounted to USD 15.3 bn by December 1, 2016
  • On December 7, 2016, the Ukrainian Parliament adopted a bill providing for increase of the monthly minimal wage level in Ukraine from the current seize of UAH 1600 (nearly USD 61) to UAH 3,200 (USD 123) from January 1, 2017

 

Eurobonds overview

The avg. prices on the sovereign Eurobonds Ukraine-2019, Ukraine-2024, Ukraine-2026, and Ukraine-2027 increased by 0.7 cents last week. Ukraine-2019 traded at 95.9 cents, Ukraine-2024 at 89.8 cents, Ukraine-2026 and Ukraine-2027 at an avg. 88.5 cents. Ukraine-2020, Ukraine-2023, and Ukraine-2025 lost 0.5 cents on avg. and were traded at 94.1 cents, 90.5 cents, and 89.1 cents respectively. Ukraine-2021 and Ukraine-2022 gained 0.7 cents on avg. to be traded at 92.9 cents and 92.0 cents respectively. In our view, a minimal readjustment of the prices on sovereign Eurobonds took place against the signs of relative stabilization on the country’s foreign currency market over the week. Among our corporate Eurobond picks, Ukrainian Railway-18, Ukrlandfarming-18, and Avangard-18 lost 19 bps on avg, whereas DTEK-18 continued gaining by another 50 bps over the week. We see DTEK to continue enjoying support from the favorable operating environment, secured by high energy consumption in the winter period, on background of the Government consistency in following its electricity market reform policy. In the meantime, the losses on Ukrainian Railway-18, Ukrlandfarming-18, and Avangard-18 might be attributed to a renewed wave of confrontation between the management of the companies and Ukraine’s regulatory instances. The head of Ukrainian Railway is still in a standoff with the transport and infrastructure minister, whereas the majority owner of Ukrlandfarming has seen the start of a criminal investigation instigated by the National Bank.

Money markets

Over the last week, the average USD/UAH exchange rate increased by 1.2% w/w to 25.98, closing at the level of UAH 25.88 on Friday. The average daily FX turnover on the interbank market decreased by 0.5% w/w to USD 162 mn, while FX trading volume amounted to USD 198 mn on Friday. The average outstanding amounts held on banks’ correspondent accounts decreased by 9.7% w/w or by UAH 4.2 bn to UAH 39.1 bn. Last week, most Kievprime indexes declined, save the longest Kievprime 1Y which gained 0.04 bps to be quoted at 18.9%. Kievprime 1W and Kievprime 6M lost 0.3 bps on avg. to be quoted at 14.5% and 18.6% respectively. Kievprime Overnight (o/n), Kievprime 2M, and Kievprime 3M lost 0.13 bps on avg. and were quoted at 13.4%, 18%, and 18.1% respectively. Kievprime 1M lost 0.23 bps to be quoted at 16.2%. NBU extended UAH 4.2 bn refinancing to banks during the week (UAH 727 mn for the previous week), whereas banks acquired NBU deposit certificates worth UAH 57.2 bn (UAH 48 bn during the previous week).

Local bond markets

The Finance Ministry placed UAH 19 mn of domestic bonds last week. NBU reduced its holding of gov. domestic bonds by 0.8% w/w (UAH 3 bn); local banks and non-residents players increased their holdings by 0.8% w/w (UAH 1.2 bn) and 1.3% w/w (UAH 114 mn); non-bank corporates made no operations with gov. domestic bonds. Secondary market activities for gov. bonds were distributed as follows: short-term bonds accounted for 24% of contracts and 19% of market volume, medium-term bonds made 76% and 81% correspondingly. USD denominated bonds represented 30% of contracts and 2% of the overall market volume. The total turnover of local govt. bonds on the “Perspectiva” SE amounted to UAH 3.3 bn, compared with UAH 2.1 bn for the previous week.

Corporate news

  • Ukrainian Railway secured note holders’ waivers of default up to end-2017
  • Metinvest’s revenue dropped 15% y/y in 9M2016