Fixed Income Snapshot - Market Update

FIXED INCOME: Ukrainian eurobonds market continued to keep its positions with mixed price dynamics. The shortest sovereigns Ukraine-09 and Ukraine-11 showed slight price growth, while quotations for the rest of the sector remained almost intact. As a result, UA-11 yields 17.3% instead of 18.3% week ago. Sovereigns were supported by recent timely coupon payments on UA-13 and UA-12.

In banking sector major news was about Alfa-banks’ eurobonds restructuring, which was predictable after recent difficulties with redemption of $100 mn issue in May (payment was delayed for several days). ALFAUA-10 lost around 200 bps in price and faced yield increase to 56.2%, while ALFAUA-11, on the contrary, gained 300 bps in price and saw yield decline to 17.2%. Last week brought yields spread widening between the most liquid banking eurobonds and those bearing high risk (Nadra, VAB, FUIB).

Further developments of gas issues have not affected Ukrainian eurobonds market yet, making slight pressure only on NAFTO quotations. Its price declined merely by 100 bps to 87% of par. This level shows the market believes the company would rather redeem its eurobond than default on it.

Our view: this week Ukrainian Eurobonds market would be strongly dependent on the news related to IMF mission visit to Ukraine. We abstain from optimism about probable results of negotiations as the main Fund’s call for political forces to unite in battling the crisis has fallen on deaf ears.

MACRO: gas remains the main topic, as on Jun, 29 EU-Ukraine technical-level talks were held in Brussels. Total meeting outcome is expected to be rather thorny for Ukraine: it may get $2 bn (instead of initially demanded $4.2 bn) to solve gas problems in exchange for structural reforms in gas sphere. Thus the topic of private ownership over Ukrainian gas transportation system is likely to be reanimated again.

Ukraine’s need for “gas money” would only grow further. According to PM, cited by local mass-media, gas purchases in three next months would significantly increase and total July payment may reach $1 bn (see the graph below). The reason is that gas price in 3Q09 is expected to be lower than in previous two quarters.

MM&FX: both UAH/USD bid and ask quotations have climbed over 7.7 level and remained there till the end of trading session. As a result, UAH depreciated to 7.70/7.74. Most likely, the national currency has found new level to stay before further slow weakening. Excess liquidity continued to dominate the money market despite the end of the month and 2Q. Banks accounts stood at UAH24.5 bn and UAH 5.3 bn were placed in certificates of deposit, thus total system’s liquidity reached almost UAH 30 bn.