4 August 2010
At a primary auction yesterday, Ukraine’s Ministry of Finance sold UAH 760 mln (USD 96.2 mln) in UAH bonds, down 53% from last week. Mykyta Mykhaylychenko: The average yield equaled 9.7% vs. 10.8% a week earlier. The yield on 3-month paper was 7%, and for 8.5-month paper – 9.9%. Bonds with longer maturities still saw less demand and we see market yields on these now well above 12%. In the coming weeks, the market will see the issuance of special VAT sovereign bonds, while the government will continue tapping the market at weekly primary auctions of ordinary sovereign UAH bonds to refinance UAH 7.1 bln (USD 0.9 bln) in maturing paper by year-end. Importantly, after the International Monetary Fund’s approval of the new USD 15 bln stand-by facility for Ukraine and disbursement of the first USD 1.9 bln tranche last week, foreign investors have returned to Ukraine’s domestic bond market and bought UAH 575 mln (USD 73 mln, +19%) in sovereign bonds last week (after shrinking their holdings by UAH 1,780 mln (USD 225 mln) during May-June). We see foreign demand for UAH denominated assets persisting in coming months on the back of eased fiscal deficit financing and UAH exchange rate risks after fiscal consolidation steps by the government in July and the renewed cooperation with the IMF.