Fixed Income Snapshot - Market Update

GLOBAL: Baltic Dry Index demonstrated growth for 22nd consequent session and reached 4106 bps on China’s demand for iron ore. This goes in line with optimistic moods, which were caused by positive statistics from USA and are reigning the global markets and driving them to levels of Y08-end. Both market sentiment and EUR strengthening would be shadowed by preliminary data on 1Q09 GDP in Eurozone (sharper-than-expected 4.8% downfall was reported) today. Ukrainian eurobonds market makes a pause in correction and keeps its positions.

FIXED INCOME: Ministry of Finance of Ukraine made another step towards introduction of primary dealers’ institute which would have to support government bonds’ (OVGZ) market liquidity. 16 banks would be chosen to get exclusive right to purchase OVGZ from the MoF and then resell them to the rest of the market. Primary dealers would be obliged to maintain bilateral quotes for OVGZ, buy not less than 3% of placement made by MoF during a half of year and provide 3% of secondary market turnover during the same period of time.

Our view: idea is good but times are bad. It would be hard if not impossible for banks-primary dealers to pick up the amounts of OVGZ desired by MoF without support from NBU. According to our estimates the Ministry is going to place bonds amounting more than UAH30 bn in 2H2009. That means every single dealer would have to buy not less than about UAH1 bn of OVGZ. Theoretically this may be possible for several largest banks but the rest just may not have enough capacity for such purchases.

MM&FX: UAH was in demand on local market for the last two days. Banking system liquidity deteriorated to UAH 15.9 bn for the first time from Mar, most likely because of budget payments. Lower liquidity led to rise in MM rates, still, it was not sharp with major changes in KievPrime 1ON and 1M, which stroke levels of 2% and 10%, respectively. UAH continued its strengthening and closed the day at 7.60/7.64, with ask rates touching 7.62 during the trading session. Further UAH appreciation this week would be constrained with deadline on gas payments to Russia which has to be made before June, 7.