Page 55 - UKRRptJun20

instruments and the positive newsflow coming out of Kyiv as Volodymyr Zelenskiy topped the polls ahead of the April presidential election.
The access to this new source of money transformed the government’s ability to fund itself and now the domestic market has become a boon as it is a second line of defence as the government attempts to fund a massively increased deficit to counter the coronacrisis.
However, since the end of February foreign investors have drawn back from the local bond market after they had a nasty shock. As EM capital markets around the world sold off the bond investors realised there were simply too many of them to all exit the market at once. Despite the rapid advances the market has made in the last year, liquidity is limited and there were simply no buyers for Ukrainian debt in March.
While the new deal with the International Monetary Fund (IMF) signed in May has brought yields down and rekindled interest from international investors (and relief for those that were stuck holding Ukrainian debt) the MinFin is looking to quadruple its borrowing from the domestic market this year (plus maybe float a Eurobond) but that will be a tall order. Yields will have to rise if they are going bring in enough money.
The Finance Ministry cut yields across the board on May 19 in its weekly auction of government bonds. ​Yields for three-month hryvnia securities fell from 11.3% to 10.5%; for six-month hryvnia securities, from 11.3% to 11% per annum; and for seven-month dollar bonds, from 3.5% to 3.4% per annum. After a long break, the Ministry offered nine- and 12-month hryvnia government bonds. Their cut-off rates were 11% and 10.97% per annum, respectively. Yields have fallen after the government signed off on the anti-Kolomoisky banking law that clears the way for a new IMF deal.
With an IMF deal seeming certain, yields on Ukraine's shortest Eurobonds have returned to normal, falling below yields on longer bonds. “Investors now expect that the next repayment will take place on schedule,” Vitaliy Sivach, ICU group trader, tells Interfax-Ukraine. “The curve returned to normal, which indicates the healthy state of the financial sector of the country.” In the middle of May, the yield of Eurobonds with repayment in September fell by 4.5 percentage points- to 6.8%.
The Finance Ministry has also started to offer longer hryvnia bonds at the weekly auction. In addition to the ‘short’ bonds of 3- and 6-month tenures, the Ministry is now offering government bonds of 9- and 12-month maturities.
Appetite for Ukraine’s domestic debt was starting to fade at the end of May. Given the increased borrowing demand by the govt to fund an expanded budget analysts are expecting the MinFin to increase yields going forward to attract sufficient funds.
55​ UKRAINE Country Report​ June 2020 ​ ​www.intellinews.com