High risks and negative anticipations

Обзор облигаций 11.11.2014 Ukraine remains under the pressure of negative anticipations caused by high yields and highly limited access to financing. The further depreciation of the hryvnia and significant decline in FX reserves caused a significant hike in domestic bond yields. Domestic bond market. Banking sector liquidity significantly recovered following month-end tax payments at the end of October. Although the broader liquidity indicator rose above UAH50.0bn last week, rates remained high and the KyivPrime ON interest rate rose to 10.0% yesterday, just 50bp lower than it was at the end of October. Moreover, as the primary auctions failed to attract market demand, the MoF only has domestic QE support to finance the state budget deficit and expenditures, as exemplified last week by the two unscheduled auctions to attract UAH1.95bn of financing. The NBU increased its portfolio by UAH0.97bn. Eurobond market. Although Ukrainian Eurobond YTMs slightly declined following the conclusion of Parliamentary elections at the end of October, spreads widened once more and benchmark yield also rose last week, causing the yield curve to move above 11.0%. The dubious ceasefire in eastern Ukraine, rampant rumours of Russian support of the separatists, depleting FX reserves, and a possible postponement of IMF loans are ongoing investment risks.