Liquidity down slightly

Обзор облигаций 29.09.2015 After last Friday's new record high at UAH80.50bn, with banks' correspondent accounts with the NBU at UAH24.07bn and total CDs outstanding at UAH56.43bn, liquidity declined slightly yesterday. Banks' correspondent accounts with the NBU slid UAH0.21bn to UAH23.86bn and total CDs outstanding declined UAH0.82bn to UAH55.61bn, causing banking sector liquidity to decline UAH1.03bn to UAH79.47bn. Investment implications: After the NBU announced last Thursday that it planned to cut the key rate from 27% to 22%, banks significantly increased their purchases of CDs, namely preferred CDs with the longest maturities. Last Thursday, banks purchased UAH5.56bn of 14-day CDs and UAH3.07bn of the same CDs on Friday, which is above the recent average daily purchase volume of UAH2.0bn for 2-week CDs. Banks likely fear that the NBU will decrease rates further on CDs as they purchased more CDs with higher yields, particularly as there is low supply of government bonds. Only such purchases as these could cause liquidity to increase as it did despite month-end tax payments.