Ukraine’s domestic bond market got off to a strong start in 2020 as heavy bidding at the weekly auction on January 22 depressed yields to 10%.
A year ago Ukraine bonds were yielding 19%. The Ministry of Finance continues to squeeze bonds by limiting supply to push down yields further, and will introduce new 7-year bonds in January.
With foreign investor interest strong in Ukraine’s government debt, the share of government hryvnia-denominated debt increased last year from 33% to 41%. Yields on government hryvnia bonds fell sharply: by 7.22 percentage points to 11.78% for three-month government bonds and by 7.08 percentage points to 11.42% for 1-year government bonds by December. The weighted average term of government hryvnia debt bonds lengthened: from nine months in 2018 to two years in 2019.
There was heavy bidding at the weekly auction for hryvnia bonds on January 22, where demand was double supply, the Finance Ministry reports.
The sale netted the dollar equivalent of $263mn, 5% more than the auction the week before. Average weighted yields were: 3-year hryvnia bonds down 237 basis points to 10.01%; 1-year bonds down 14 basis points to 10.04%; and 6-month bonds down 172 basis points to 10.03%, reports UBN.
In the same week Ukraine issued €1.25bn in 10-year euro-denominated Eurobonds at the low rate of 4.375% per annum; this was six-times oversubscribed as yields on Ukraine's sovereign debt also tumbled.
This low interest bond deal will save Ukraine $2mn a day, Prime Minister Honcharuk posted on Telegram after the news broke at Davos. “Our government has inherited a heap of insane debt,” he wrote. Referring to a $20bn a year load, he wrote: “Servicing the national debt is the largest item of expenditure from the State Budget. It will average UAH484bn a year by 2022. That is why we have placed Eurobonds at the cheapest interest rates in the history of Ukraine. In simple words, we replace debts - we give away expensive ones, and we take much cheaper ones.”
The attraction of the bond market will continue as the National Bank of Ukriane is expected to slash rates next week by 200 basis points or more, ICU writes: “Generally, current conditions seems to have put rates very close to the bottom, and a further decline in the NBU key policy rate will not have significant impact, especially at the long end of yield curve, where demand is mostly seen from foreign investors.”