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Economy 2020-03-27T04:03:43+02:00
Ukrainian news
Non-Residents Lose Interest In Government Domestic Loan Bonds Due To Negative Expectations From Coronavirus In

Non-Residents Lose Interest In Government Domestic Loan Bonds Due To Negative Expectations From Coronavirus In Foreign Markets And Declining Rates - Financiers

hryvnia, exchange rate, hryvnia exchange rate, loan bonds, government domestic loan bonds, Coronavirus

Financiers note that non-residents have lost interest in government domestic loan bonds because of negative expectations from coronavirus in foreign markets and declining interest rates.

They reported this in a comment to the Ukrainian News Agency.

“The fact that the last auctions of the Ministry of Finance were held without the participation of non-residents significantly affected the volume of funds raised. In general, we had expectations that non-residents would begin to leave the Ukrainian market in the first quarter of this year. At the end of last year it was clear that the NBU discount rate and government domestic loan bonds rates will decrease, so buying government bonds in 2020 would be a less profitable investment than in 2019," commented Yevheniya Akhtyrko, an analyst of the Concorde Capital.

According to her, at the current rather low level of inflation, the nominal yield on bonds of 10% still gives a high real yield on government bonds.

She noted that the fact that non-resident investors at the moment decided to refrain from further investing in Ukrainian government bonds may have several reasons.

“Perhaps these were just decisions related to portfolio policy and the allocation of limits within the bank. Since the beginning of the new year, they also always think about new political risks, although there could have been much more potential political risks at the beginning of last year, but this did not stop non-residents from continuing increase the volume of purchases of government bonds throughout the year," Akhtyrko said.

According to her, it is possible that the rate of return and political risks for foreign investors still look good, but the unrest in the financial markets associated with the outbreak of coronavirus put the purchase of Ukrainian government bonds on hold.

“The currency inflow associated with the purchase of Ukrainian government bonds by non-residents last year really provided significant support to the foreign exchange market. However, there were other factors. We see that the volatility in the foreign exchange market has already increased since the beginning of the year,” the analyst added.

She said that in many cases, the hryvnia begins to devalue more on negative expectations (non-residents leaving the government bonds market, the threat of a coronavirus pandemic) than due to a real currency shortage in the market.

According to Yaroslav Kabin, director of the Treasury Department at Idea Bank, the results of the last two auctions of the Ministry of Finance on the placement of government bonds indicate a gradual fading of non-residents' interest in the Ukrainian public debt.

"In our opinion, the main reason is not coronavirus, but a sharp decrease in the NBU discount rate to 11%, which accordingly led to a decrease in the Ministry of Finance rates for attracting resources in government bonds," he said.

According to the banker, the range of rates of 9.5% -10% is no longer so attractive to foreign investors, given the high risks of our country.

"We see that foreign investors are reallocating resources from repayments of previous series of government bonds, and they are not making new investments yet. Accordingly, there is practically no currency offer from them," the banker said.

However, he notes that agricultural exporters have recently stepped up on the market, who during this period traditionally sell currency in preparation for the next season.

Also active sellers of currency are metallurgists, as well as large state-owned companies, including Naftogaz.

“The National Bank is an active bidder and smoothes out sharp fluctuations in the market. Recently, the regulator buys all surplus currency into reserves, thereby preventing the hryvnia from strengthening even more. Therefore, we do not see any preconditions for the devaluation of the hryvnia in the near future, perhaps even a small one strengthening," concluded Kabin.

As Ukrainian News Agency earlier reported, bankers and analysts predict that the hryvnia will remain at 24.3-24.8 UAH/USD in March.


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