Daily Insight: New 10-year sovereign Eurobond issued; gov\'t bond auction results; domestic liquidity down, allowing UAH up

The UAH recovered yesterday towards 8.1650/USD, according to Interfax-Ukraine. The NBU is reported not to have intervened. The tight domestic liquidity, as exemplified by the ON KyivPrime rate reaching an astronomical level of 51.6% yesterday, explains the market conditions. Trading exceeded US$1bn in USD/UAH, and FX market trading activity data shows that this part of the local financial market has been inhaling a majority of the financial resources. According to our calculations, the average daily FX market turnover in all currencies, including the most actively traded USD, was 3.6 times the average daily volume of the foreign trade turnover in goods. This level strikingly differs from the level of this ratio in the middle of this year when it was at 2.5x and from full-year 2012 when it was at 2.0x. In late 2008, before the previous financial crisis, it was at 1.0x. All this suggests that financial activity in the economy recently has been acutely skewed to FX trading. In our opinion, this is herd behavior. Meanwhile, the UAH trade-weighted index declined yesterday by mere 0.01%, while the USD index was 0.1% up.
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