Fixed Income Snapshot - Market Update

GLOBAL: The rally in fixed income goes on, strongly supported by Fed’s decision to expand its balance sheet and improved commodities outlook. Over the last week key Ukrainian benchmarks delivered returns that could be compared to equity. Ukraine-09 climbed up from 75 to 83 (percent of par) while Ukraine-13 jumped from 36 to 48. Positive sentiment also spread to banking and corporate sector, with some trading being restored on smaller and riskier issuers.

Our view: the trend is becoming oversubscribed on the sovereigns while some of corporate notes do look extremely cheap.

MACRO: A 13% duty on non-critical import effective from Mar 6 for the next 6 months has been abolished (as we supposed in our Snapshot “Target auctions prove to be efficient”) for all goods except for cars and refrigerators. We remind that some important constituents of consumer basket such as meat (its domestic production is plunging), fish, fruits, clothes were subject to this duty.

Our view: we expect no impact on imports as it had already fallen by 56% y/y as far back as in Jan well in advance the regulation was adopted. The only effect may be seen in CPI level in Mar, still we believe it would be moderate as the duty was in force for only two weeks. We can’t but mention the remaining duty for refrigerators and cars gives a matter for WTO claims to Ukraine.

BANKING: NBU announced yesterday that it would recommend the government to recapitalize Nadra, Ukrpombank ans Rodovid banks. Nadra and Ukrprombank stated their need for UAH5bn and UAH3.5-7 bn accordingly while Rodovid planned additional stock issue on UAH1.1 bn (we estimate the bank’s needs should get to UAH2 bn at least). In addition to the banks recommended by NBU three other institutions (Finance & Credit Bank, Ukrgazbank and Imex Bank) have declared their plans to file for state recap.