Weekly review: US$2bn Eurobond in the spotlight

Local currency. The NBU continues to defend the UAH within the desired territory of 8.05-8.10/USD, as incumbent ruling parties prepare for parliamentary elections this October. The political manifest of \"achieved stability\" spells out to the FX market that authorities are keen to preserve the current, rigid FX regime for a few more months.

Domestic bond market. The domestic bond market was weak last week, lacking significant demand at the primary auction, and with high interest rates on the money market and low volumes of liquidity. The NBU likely tightened liquidity to keep the UAH/USD interest rate more stable, but as a result, backed off from its support of liquidity and cut the level of funds in the banking system. This week is the last one before tax payments, and if the NBU does not resume its support, we could see liquidity falling at the end of this week and the beginning of the next week.

Eurobond market. Last week, the MoF agitated the bond market with its new public Eurobond issue, which was announced last Tuesday morning and closed the same day. After the original book was more than six times oversubscribed, the volume of the issue was increased to US$2.0bn, and the interest rate was set at 25bp lower than issue guidelines. The MoF likely caught the right moment for issue, because at the end of last week, YTMs of Ukrainian Eurobonds rose as contagion from the Eurozone debt crisis resurfaced in dramatic fashion.
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