Spreads Widen Amid Weak Sentiment

UKRAINIAN EUROBONDS
Weak sentiment continued to push Ukrainian Eurobond spreads wider last week. Benchmark Ukraine 20s and Ukraine 21s slipped by 2.0-2.5 points to 87.0/88.0 (10.00%/9.81%) and 89.0/90.0 (9.78%/9.60%), respectively. Quasi-sovereign Oschadbank lost 3.0-4.0 points to 81.0/83.0 (14.32%/13.60%). In the corporate sector, Metinvest 15s moved down 3.0 points to 95.0/98.0 (12.05%/10.95%) and Metinvest 18s closed at 88.0/90.0 (11.50%/11.01%), or 5.0 points lower. Despite publishing stronger than expected 3Q11 financial results, MHP remained unchanged at 92.5/94.0 (13.02%/12.45%). This week we expect more sluggish trading activity due to holidays in the U.S. on Thursday and Friday. In Ukraine-specific news, we expect parliament to consider the 2012 budget in the second reading and do not rule out additional clarity as to the outcome of ongoing gas price talks with Russia as early as this week.

UKRAINIAN DOMESTIC BONDS
We see signs of a trend reversal on the local bond market. Only a few sellers are staying on the market, mostly on the short end of the curve. The long end of the yield curve (VAT bonds) came down slightly last week as hryvnia depreciation concerns subsided. However, activity in the corporate bond segment was very low. Bank liquidity remains tight, with banks’ balances with the NBU slipping to a new low of UAH 9.9bn on Monday morning on the back of corporate tax payments.
WEEKLY NEWS DIGEST
Eurobond Market
Russia may cut gas price for Ukraine to $220-230/tcm, local paper says
Industrial output growth slows to 4.7% y-o-y in October
Parliament rejects move to release Tymoshenko
MHP— Reports strong 9M11 results
Ferrexpo — Weaker outlook slashed on downgraded iron ore price forecasts
Agroton — Completes winter crop sowing
FUIB — Strong 9M11 IFRS results

Domestic Bond Market
Government sells tiny UAH 50m of 3-year devaluation-protected bonds, yields inch higher, after selling UAH 0.7bn a day before
NBU increases reserve requirements for short-term F/X deposits