Liquidity declines and is reallocated

Обзор облигаций 22.05.2015 Banks' correspondent accounts with the NBU rose UAH2.48bn to UAH24.77bn yesterday, but this increase was supported by cash-flows from CD redemptions (as CDs outstanding declined UAH2.26bn to UAH30.81bn) and from debt repayments. Total local currency debt repayments scheduled for the next 30 days fell UAH1.26bn to UAH4.33bn. As a result, broader banking sector liquidity declined 0.92bn to UAH59.91, falling below UAH60.0bn for the first time since increased a week ago. KyivPrime interest rates slightly diverged: the KyivPrime ON interest rate declined 20bp to 21.00% while the KyivPrime 1M interest rate remained steady at 27.80%. Investment implications: The NBU issued only UAH0.05bn of additional ON loans on Wednesday, but significantly decreased ON CDs outstanding from UAH6.71bn to UAH4.10bn. The MoF also injected funds. However, from UAH1.26bn of funds repaid in local currency this Wednesday, should mostly be received by the NBU and not be accounted for in banks' correspondent accounts. If all debt repayments are received by the NBU, the decline in the broader liquidity indicator was most likely less significant. This could indicate that liquidity should begin to recover after the quarterly tax payments which were just completed, but prior to next week's month-end tax payments.