February 04, 2005 | Cbonds
|High demand for government securities is caused by the booming interest of foreign investors to Ukraine, lack of government paper supply on the market, as well as expectations of hryvnias strengthening. This opinion was expressed by the experts evaluating the results of the long-term domestic government bond auction held by the Finance Ministry on February 1, 2005.|
“In our estimate the demand on yesterday’s auction equaled 3-4 bln hryvnias and a lot of investors set the yield in the attempt to grasp something at least. The supply on the market is week, the next auction is in March, besides the Finance Ministry has only 2 bln hryvnias worth of bonds to place”, - commented Alexander Sulayev, head of investment at UkrSibbank.
According to him, investors are interested in buying high-yield government bonds, as there is a potential for the yield reduction.
“Spread between sovereign eurobonds and domestic government bonds currently equal around 480-500 bps., while Russian government bond spreads amounts to 160 bps. Wider spread in Ukraine results from the lower rating of the country (BB-, compared to Russia’s BBB-) and low market liquidity. However, the spread will tighten with a rating upgrade and domestic market development in Ukraine”, - Sulayev says.
According to him, the Finance Ministry and the National Bank needs to exert every effort to increase domestic market liquidity. One of the steps in this direction may lie in release of domestic government bonds for circulation, as currently they are held in the National Bank’s portfolio. The expert believes this measure will boost the market capacity by 6 bln hryvnias without increasing debt servicing expenses.
Alexander Pecherizin, head of analytics at Alfa-Bank (Kiev), says yield reduction on long-term government bonds will lead to yield reduction on VAT-bonds to 9-10%. The expert also forecasts possible appearance of a long-term government bond secondary market.
Oleg Shipanjuk, senior analyst at ArtA Securities (Kiev), agrees that the yield of these bonds is going to fall. “It may move down to 9% and less, although not too fast. Reduction will stop as soon as demand matches supply. Yield of Vat-bands will decrease, but at this point there is no supply. The Finance Ministry has already issued long-term government bonds worth 2.2 bln hryvnias of the planned 4 bln for the whole year. This amount may be increased”, - the expert said.
Based on Korrespondent.net data