UAH sovereign bonds: volumes down, yields up marginally

Yesterday the government attracted UAH 78.3 mln (USD 9.8 mln) at a primary sovereign UAH debt auction, nearly 80% less than a week ago. Mykyta Mykhaylychenko: As the government still has an abundant cash cushion after its USD 2 bln Eurobond placement in September, it has been satisfying only the best bids at auction. At the same time, the range of bid yields indicates that rates went up marginally over the last few weeks as demand dried up (total bid volume totaled to UAH 790 mln, down 29% from the last week). In particular, although the 8M average yield stayed unchanged from two weeks ago at 7%, the worst bid came in at 8.5%, 1 pp above last week for the same paper; the 1.5Y average yield stood at 10.6% yesterday, while the worst bid came in at 11.9% YTM vs. 10.75% two weeks ago. We see marginal fluctuations in short-term yields as possible in the second half of November as the government needs to redeem UAH 2.7 bln on November 17 and 24. At the same time, we reiterate our view that the overall public debt profile and redemption schedule will be in check and the Finance Ministry will manage to avoid a significant a cost of debt increase in the coming months, conditional on receiving the next USD 1.5 bln tranche from the IMF (incl. USD 1 bln directly to the gov’t) in November-December and privatization of Ukrtelecom in line with the schedule at the end of 2010.