Bonds: Ministry of Finance expands offering of military bonds
Last week, the Ministry of Finance expanded its offering of military bonds and started to offers longer maturities. Funds can now be provided to support the government during martial law for up to 15 months.
For the second quarter, the Ministry of Finance plans traditional weekly primary auctions, which will offer mostly semi-annual and annual hryvnia-denominated military bills. In April, the Ministry of Finance will offer bills denominated in local currency maturing in November 2022 and in June 2023. In addition, the offer will include euro-denominated papers due in December this year and USD-denominated bills due in April 2023. Also in June, in addition to local currency bills, new annual bills denominated in euros and USD are currently planned.
The change in instruments offered at the primary auction has resulted in a decline in demand for military bonds on the primary market, but has increased activity on the secondary market. According to the National Bank of Ukraine, 1,473 agreements worth UAH416m (US$14m) were concluded last week, which is more than the week before (1,292 agreements worth UAH406m (US$13.8m)). Individuals last week continued to actively buy military bonds and increased their portfolios by another UAH222m (US$7.5m) to UAH25.75bn (US$0.8bn).
ICU view: The Ministry of Finance has so far published a schedule of primary auctions for the second quarter indicating the tenors and currency denomination of the proposed instruments. For April, the Ministry of Finance published the schedule with specific instruments to be offered at each primary auction. Of course, the list of bonds can be changed again to ensure an even distribution of redemptions if the planned issues attract significant amounts.
Bonds: Prices of Eurobonds rising
The new phase of talks between Ukrainian and Russian delegations in Turkey last week, which discussed the possibility of entering into a peace treaty, has contributed to even higher prices for Ukrainian Eurobonds compared with the previous week.
Early last week, another round of talks took place in Turkey between Ukrainian and Russian delegations. Following the negotiations, the representatives of the Ukrainian delegation announced a number of proposals to end Russia’s war against Ukraine, including the signing of a peace treaty and an international security agreement for Ukraine.
This news contributed to an even greater improvement in sentiment toward Ukrainian Eurobonds. Over the past week, prices rose another 5-10 cents per dollar to 42-62. In terms of YTMs, this corresponds to 21-163%. The most noticeable are the changes in prices and YTMs for bonds maturing in September this year: the YTM was 162% last Friday, slid over the week by 60bp and from the peak level by 260bp. The price respectively rose to 62 cents per dollar, or by 9 cents last week and by 28 cents per dollar from its lowest seen on March 7.
The government’s position, repeatedly confirmed by the Minister of Finance in interviews and briefings, was an additional factor supporting Eurobonds. The Ministry of Finance keeps saying that Ukraine will be able to service its external debt on time and in full this year and a restructuring scenario is not being considered.
ICU view: Ukraine’s strong resistance against Russian aggression and a reconfirmed commitment to servicing its debt are improving investor sentiment toward Ukraine’s sovereign Eurobonds. However, prices are still far from pre-war levels. Recent price dynamics show that investors have reassessed the risks of a Ukrainian victory in this war, thanks especially to growing support from foreign partners, both military and financial.
RESEARCH TEAM: Vitaliy Vavryshchuk, Alexander Martynenko, Taras Kotovych
See full report here: https://icu.ua/en/
