Local News Flow Adds to Negative External Backdrop

UKRAINIAN EUROBONDS
Last week global bond markets were driven mainly by the U.S. and European debt woes, keeping investors cautious and riskier assets under pressure. Ukrainian bond spreads widened at the beginning of the week with the long end of the curve declining by more than a point through Tuesday and remaining stable for the rest of the week. In the corporate universe, the main underperformer was Ferrexpo — its bonds (FXPOLN 16s) came under pressure after media reported security service raids on the headquarters of Ukrainian companies controlled by Ferrexpo’s majority shareholder. The bonds traded to as low as 100.625/101.25, inside Metinvest and around 3 points off their peak levels. Mriya, on the other hand, was well bid throughout the week and finished at 101.75/102.25. This week we expect activity to remain low due to the traditional summer lull. More news on the Greek situation should be expected on Thursday, when European leaders are scheduled to meet in Brussels to discuss details of a new bailout package. Apart from that, we expect the market to react to fresh U.S. housing and labor statistics and to bond auctions at EU periphery countries (Spain, Portugal and Greece).

UKRAINIAN DOMESTIC BONDS
Last week saw increased volatility on the domestic bond market. With bank liquidity remaining squeezed at the beginning of the week, hovering at UAH 12-13bn, activity and prices dropped, depressing demand at the regular Treasury auction. The government sold only UAH 285m of 3-year bonds at a 10.1% yield, much lower than secondary market levels. The end of the week saw a pick-up in banking system liquidity, which boosted activity in the repo market and demand for 2 and 3 year Treasuries. In the corporate segment, Ukrtelecom bonds appreciated strongly on increased trading activity. At the next Treasury auction tomorrow, the government will offer 3-month, 9-month and two-year issues. In the corporate segment, Bank Credit Dnipro’s UAH 100m series F bond should start trading on the secondary market.
WEEKLY NEWS DIGEST
Eurobond Market