Demand for military bonds increases
The Ministry of Finance (MoF) confirmed last week that there was an increase in demand for military bonds, but conditions were not in place for a rate cut.
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Secondary bond market activity also focused on military securities. Last week, the Ministry of Finance received bids worth 63 billion hivres, but the sale price was only 20 billion hivres, or US$200 million. UAH military bonds due in May 2026 and 2027 were oversubscribed by a factor of 4, while the 12-month bond was oversubscribed by a factor of 1.3.
Interest rates remained unchanged last week as most of the bids were close to last week’s cut-off rate. Please see auction review for details.
Transaction value in the secondary bond market increased by 9% to 8.7 billion hrivres. Military bonds were the most actively traded, accounting for 55% of all trades, while reserve bonds only accounted for 24%.
This Wednesday, the Ministry of Finance is scheduled to redeem bonds worth approximately 20 billion hryvnias. What the Treasury will issue tomorrow will be the same as last week, including the same five bonds with the same caps, including just one non-military three-year bond.
ICU’s view: Although most of the bonds offered in the auction were significantly oversubscribed, investors did not rush to engage in price competition and did not allow the Treasury to lower interest rates.
Investors expect bond rates to remain largely unchanged in the coming months, as the NBU has no plans to cut its key policy rate this year.
This week’s redemptions should support demand for new military bonds, with the Treasury expected to sell all planned military bonds.
Eurobond prices continue to rise
Ukrainian eurobond prices continued to rise last week.
One possible reason is that investors hope the US election will pave the way for an end to the war in Ukraine.
Last week, prices rose by an average of 4%. Some corporate bonds are valued at 49-50 times, and step-up bond B in particular is due in 2035-36, with the possibility of an increase in principal in 2030.
VRI’s price fell 0.3% to 72.8 cents per dollar of notional value. The EMBI index fell by 0.8%.
ICU’s view: A peace settlement in Ukraine will be pursued more aggressively as the US presidential campaign draws to a close, even though the way the war ends could vary greatly depending on who wins the election. It is highly likely that the trust of deaf investors has increased.
The rise in the price of Step-Up Bond B, which matures in 2035-36, also largely reflects expectations for a rapid economic recovery after the end of the war.
NBU allows weakening of the hryvnia
The NBU allowed a slight decline in the hryvnia last week, despite a small increase in intervention. The foreign exchange market deficit widened significantly.
In four business days, net purchases of hard currency in the interbank foreign exchange market increased by 42% to USD 254 million, as bank customer (corporate) hard currency sales decreased by 7% to USD 874 million. It became US dollars.
The NBU increased its weekly intervention amount by about 5% to US$708 million, slightly above the two-month minimum as of a week ago. NBU sold around US$120-130 million every day, except Wednesday, when it sold at least US$180 million. The official exchange rate of the hryvnia fell by 0.2% to UAH41.35/US$.
ICU’s view: The NBU did not significantly increase its interventions, which led to the hryvnia falling twice last week to above 41.3 hryvnia/USD.
The increase in intervention last Wednesday may still indicate that the NBU will not allow the hryvnia to fall further. This week, the NBU could limit hryvnia fluctuations to around 41.3 hryvnia/USD.
However, we still assume a gradual devaluation of the hryvnia by 2-3% by the end of the year.
