Bonds: Refinancing of redeemed debt remains strong
In the month to date, the Ministry of Finance has so far raised enough funds to refinance the large repayments made two weeks ago. On May 24 and May 31 it may also attract enough funds to refinance all repayments scheduled for May. Since the beginning of May, the government has borrowed more than Hr 19bn ($644m) for the state budget, with only $50m in hard currency.
In particular, last week’s borrowings came to Hr 7.5bn ($254m) where 1.5-year bills accounted for the largest part (more details in the auction review). Last week, the structure of buyers of military bonds did not change. New bonds were mostly purchased by banks, but other residents also remained active. So, last week, the portfolios of banks grew by Hr 6.7bn ($227m), of non-banking institutions by Hr 0.3bn ($10m), and those of individuals by Hr 0.9bn ($30m).
Foreign investors did not buy local-currency bills last week. Over 13,300 deals with local-currency bills worth Hr 1.7bn ($58m) were concluded on the secondary market last week. This is not the largest weekly volume of transactions; however, it is close to the average weekly volume since the Ministry of Finance began placing military bonds.
ICU view: The interest of domestic investors in military bonds remains high. We expect that for the remaining two auctions this month, they are likely to buy a considerable amount of new bills. Such purchases could be an important support for the budget in wartime, as tax revenues and international aid will not need to be spent on repaying hryvnia domestic debt.
Bonds: Eurobond prices rising sharply
Ukrainian Eurobond prices rose all last week, and now prices are approaching their maximum values since the start of Russia’s full-scale invasion of Ukraine.
Eurobond prices fell sharply on Feb. 24 and reached their lows in early March at 14-34 cents per dollar. But as the panic subsided, Eurobonds prices rose to 32-62 in early April, although they fell back again later.
Last week, Eurobonds maturing in September 2022 rose by 7 cents to 71 cents per dollar and reached a new high since the Russian invasion. Other Eurobonds added just 3-4 cents to 40-47 cents per dollar, which is slightly below the 42-51 cents observed in early April.
The price of GDP warrants, which cost almost 39 cents on Friday night, has also risen sharply to the highest level since the start of the war.
ICU view: Last week, investors received several important signals from the United States and other G7 countries about support for Ukraine. First, the US Congress approved an aid package of almost $40bn which, among other things, includes direct financial support for the Ukrainian state budget. Second, specific details of financial assistance from G-7 countries began to emerge.
They are going to provide almost $20bn to support the country during the war (the US financial assistance is a part of this amount). In addition, the Ministry of Finance reiterated, in communication with investors, that it sees no need to seek Eurobond restructuring.
Such news could have contributed to a significant rise in the price of bonds maturing in September, as well as VRIs. It looks increasingly like Ukraine is going to see a sufficient inflow of international financial assistance in the next few months and, therefore, will have sufficient hard-currency liquidity compared with the amount of scheduled debt repayments in the coming months.
RESEARCH TEAM: Vitaliy Vavryshchuk, Alexander Martynenko, Taras Kotovych
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