Weekly review: All eyes on the VTB loan repackaging and refinancing

Local currency. The central bank restarted its FX market interventions after a multi-month break, offering USD at 8.02, for the sake of keeping the UAH largely stable, and so as not to deviate from the desired level of a hair off 8/USD. Authorities are to adhere to this strategy unless the current economic slowdown turns into an economic recession.

Domestic bond market. Solving external debt repayments problems by using local sources has significantly pressured the local money market and pushed down banking sector liquidity from a comfortable level to close to the trough level of this year. And, while banks\' correspondent accounts did not fall below UAH15.00bn, broader banking sector liquidity fell to UAH21.71bn, or only UAH0.17bn higher than the trough level of this year, fixed in February. Under these conditions, we do not see demand for local-currency bonds, and should not see this demand this week, as we do not expect a recovery in liquidity due to Naftogaz\'s payments to Gazprom.

At the same time, the MoF slightly changed its schedule for primary auctions in June, decreasing the number of the auctions from last month, and excluding the 12-month, USD-denominated bond from this month\'s schedule, so as not to increase the debt burden for the next June.

Eurobond market. A final agreement on the VTB loan repackaging was signed last Thursday, though the MoF did not publish the information until late last Friday, and the news did not have a positive impact on Eurobonds\' prices and yields. At the same time, a sell-off of risky assets last week significantly increased the YTMs of Ukrainian Eurobonds above 10.0%. Spreads widened close to 1,000bp, and the 5-year Ukrainian CDS moved up to 907bp yesterday.
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