Bonds Resilient Amid Stock Rout

UKRAINIAN EUROBONDS
Despite weak equity markets, GEM bonds, and Ukrainian debt in particular, held up well last week. Long-end sovereign spreads over UST tightened slightly, with Ukraine 21s closing at 104/105 (7.35%/7.21%), or up 0.75pt w-o-w. Quasi-sovereign issues followed suit, with Naftogaz 14s up 0.5pt to 107.0/107.5, EXIMUK 15s up 0.5pt to 100.0/101.0, and OSCHD 16s up 1pt to 97.0/99.0. Corporates were mixed as DTEK 15s, METINV 15s and MHP 15s ended the week higher but FXPOLN 16 lost 1.5-2.0pt, trading at 93.0/95.0. This week, markets are looking to Fed Chairman Ben Bernanke’s speech at the Jackson Hole conference on Friday, expecting more clarity on the Fed’s actions. In other potential market-driving events, PMI statistics for the eurozone and U.S. data on new home sales and 2Q11 GDP revision are due to be published this week. Among Ukrainian issuers, we expect publication of positive 1H11 financials from agricultural producer Agroton.

UKRAINIAN DOMESTIC BONDS
The local bond market remained sleepy last week. The situation in the government bond segment improved slightly on the back of bank liquidity stabilization, pushing VAT bond yields down to 13.5%. Non-residents continued to decrease their exposure to government bonds amid global volatility, which was accentuated by renewed talk about hryvnia depreciation. The corporate segment saw no major price action. We expect no further yield decline and still see some selling pressure in VAT bonds. Scheduled tax payments by corporates may lead to a liquidity squeeze at the beginning of this week, leaving the market unsettled.
WEEKLY NEWS DIGEST
Eurobond Market
MHP — Reports 1H11 results
DTEK — Posts strong 1H11 operating results
Ferrexpo — Untrue report on production shutdown; Fitch revises rating outlook to Positive
VAB Bank — Shareholders reported to consider selling the bank


Domestic Bond Market
Kharkiv plans UAH 99.5m bond issue
Primary Treasury auction fails again as demand remains close to zero