Since the start of Russian aggression, Ukrainian citizens have become increasingly committed to investing in military bills and have so far purchased UAH0.6bn (US$20m) of this instrument.
Since the start of placement of military bills on 1 March 2022, regulators have simplified the conditions for purchasing this instrument. Ukrainian banks and dealers have streamlined their terms and cancelled fees for all or part of their services to individuals. This has significantly expanded the potential base of investors, particularly small clients.
Thus, since the beginning of the month, according to the National Bank of Ukraine, Ukrainians have bought military bonds worth UAH0.6bn (US$20m) and US$0.7m. At the same time, they bought some of these bonds on the primary market. In the space of just three weeks, 2,000 individuals have stepped in and bought military bills.
Deals on the secondary market were active last week, although the volumes were relatively small, as some customers bought bills on the primary market. Last week, 1,300 deals worth UAH406m (US$13.5m) were concluded, while a week earlier 1,200 deals worth almost UAH1bn (US$33m) were entered into.
ICU view: The dynamics of trade in military bills indicate an increase in the number of retail customers wishing to purchase bills in small amounts. At the same time, the amount of funds raised at primary auctions remains large due to the participation of banks and legal entities, which together have already purchased military bills for UAH21.5bn (US$0.7bn).
Bonds: Eurobond market prices Ukraine’s resistance
Investors in Ukrainian Eurobonds welcome Ukraine’s strong resistance to Russia’s aggression, however still weigh the risks of a long confrontation and a decline in the country’s solvency position.
After the threat of Russia’s invasion of Ukraine began to emerge months ago, the prices of Ukrainian Eurobonds became very volatile. However, after 24 February 2022, when the invasion by Russian troops began, they fell sharply. They reached their lowest values on 7 March of 21-34 cents on the dollar, which corresponded to yields of 37-427%, depending on the maturity. But the next day, prices rose gradually, and last week fluctuated at 35-50 cents per dollar, which corresponds to yields of 24-250%.
This dynamic reflected Ukraine’s strong resistance to Russia’s aggression. It now looks as though not only will the invasion be halted, but Ukraine will gradually regain control of certain territories. The prices of Eurobonds were also supported by large amounts of financial assistance from International Financial Institutions.
ICU view: Eurobond prices have likely reached temporary highs and no major moves are expected in the near future. Russia has been using heavy weapons against Ukrainian cities and civilians, destroying infrastructure and industry, and blocking seaports. Therefore, currently, Ukraine’s ability to export is very limited, and loans from IFIs are the only material source of hard currency inflows to the country. Large institutional investors will expect greater clarity on the prospects for ending the war before reassessing the fair value of Ukrainian Eurobonds.
RESEARCH TEAM: Vitaliy Vavryshchuk, Alexander Martynenko, Taras Kotovych
See full reports here: https://icu.ua/en/
