Banks were actively buying up government debt securities, especially after the Treasury proposed a three-and six-month paper with a yield above 20%. Bankers attributed the increased interest in the Government Bonds opportunity to obtain a higher yield in the absence of credit conditions of the economy in the short term

last week investitsionschik attention was riveted on the market of fixed income securities. On the one hand, after months of accusations of NBU redeemed a conflict between banks and bondholders, the July explaining his decision number 421, according to which the National Bank prohibits prepayment of debt banks that have a negative financial result. On the other - all waiting for the next auction of the Ministry of Finance Managers of domestic public debt (Government Bonds). This auction was supposed to demonstrate, was whether the increase in demand at the previous auction surge caused by subjective factors, or he laid the foundation of a new trend.

pay bills

Perhaps the most important event for the market was the decision of the banking regulator is not detrimental to punish banks that fulfill the offer on its bonds. Violation of this rule (except in the case of repayment at below 50% of the nominal value, and provided that the redemption of bonds does not lead to significant deterioration of the bank's liquidity), the head of the department of banking regulation and supervision of Basil Pasichnik could exercise the right to apply measures of influence, until the introduction of temporary Administration in the bank, forced reorganization, license revocation and the initiation of bankruptcy proceedings. The main purpose was to defend the decisions of banks that are experiencing financial problems, from lawsuits by creditors. However, such drastic action may have a negative impact on the image of those banks which have the ability to repay, - analysts say Astrum Investment Management.

This opportunity is available for Alfa Bank, which bought last week presented with the investors to put bonds. Now to repay their debt securities will be other big banks who care about their reputation, experts say.

The decision of NBU is a positive factor for investors, because some banks at the moment may have sufficient liquidity to redeem their bonds, and they are likely to be the timely implementation of the offer in order to avoid reputational risk and to maintain a positive credit history - the report says ING Wholesale Banking Ukraine. - Reduced reputational risk is especially important for banks with foreign capital, and since these banks can get financial support from their shareholders, they are to fulfill their obligations. However, according to analysts, the decision of the National Bank does not prevent banks that do not want to execute the offer, and subsequently renege on offers on the basis of Decree number 421.

Offer Alfa-Bank was the first on the market after the adoption decree. Will the banks to ignore the ban on early redemption of debt, will show the offer is coming - September 20, comes an offer of bonds Swedbank, and 22-th - Ukrgazbanka. Both got up to two quarters of losses dueto the formation of reserves. Banks are not afraid to reputational risk, declare a technical default as Kreditprombank and new state-owned banks may hold on the ruling and refuse to investors - says Sergey Fursa of Astrum Investment Management. - And the banks with foreign capital will likely buy those small amounts of their debts that there is still on the market, because during the hard struggle for the deposit of the population they do not need negative publicity.

The roller coaster

But the primary auction of the Ministry of Finance on the sale of Government Bonds was not as successful as the previous week. Ministry of Finance managed to place only on paper 124,7 million UAH. The volume of accommodation Government Bonds fell immediately by 70%. Results of the auction expected to virtually all market participants, because, according to Sergey Fursa, this auction will have to demonstrate whether the growth in demand at the previous auction surge caused by subjective factors, or he laid the foundation of a new trend. At the previous auction of Government Bonds Treasury posted three series of $ 445 million UAH. That 220% of the results surpassed the previous auction, and the yield of placement ranged from 21.9% at the short end of the curve up to 23% on a two-year securities.

Demand for Government Bonds by the banks has increased many times especially during the last few weeks, when the Finance Ministry, to motivate the bankers had to offer the market a shorter time-of paper and increase their profitability. At the same time buyers Government Bonds were not only state-owned banks, as it was in the first half of the year, but private banks with foreign and domestic capital, as well as insurance companies.

Back in mid-May, the Finance Ministry refused to plans to deploy long-term bonds with repayment of more than three years since they were not of interest to investors. Because of the need to finance social expenditure budget in the context of falling tax revenues the Ministry of Finance has agreed to sell the debt securities are short and sharply increased the rate of return. Recall the July the same yield of government securities increased to 29%.

the demand due to the fact that financial establishments still do not have much choice lucrative financial instruments for investment. Investments in short OVGZ minimize the risks of banks, who fear to lend to the economy, and the NBU regulations require them to allocate its assets for the term involving liabilities. Banks are still afraid to invest in loans. And Government Bonds may be resold in the secondary market. In addition, under them you can get refinancing of the NBU, - said the treasurer bank with foreign capital. There can now compete on the yield Government Bonds and money market.

cost of three resources (KievPrime 3M) is within 11%. Investments in corporate bonds and stocks are too risky, and certificates of deposit of the National Bank, although shorter-term, but profitability in their times less (two-week certificates are placed at 4-6% per annum).

Still, many analysts considered the results of recent auctions, illogical, especially against the backdrop of falling liquidity of the banking system and the sharp devaluation of the hryvnia. Also confused and reduced requirements for profitability. According to Sergei Fursa, yielding the market can be explained as an uneven distribution of liquidity among banks, and the desire of some banks to enter the list of primary dealers, which made them more sympathetic to the wishes of the Ministry of Finance.

As a result, a sharp increase in the volume of placement did not start a new trend. Ministry of Finance at the last auction has satisfied only eight out of 30 applications. 55% of purchases have focused on the short end of the curve. Demand for three-year paper yield level cutoff for which the Ministry of Finance left unchanged at 23%, was minimal.

According to market participants, the recent placement of Government Bonds say about the new price policy of the Ministry of Finance on the domestic market borrowings. Now, by selling Government Bonds only to banks, which put the minimum application, the Finance Ministry is trying to reduce the cost of borrowed resources, and persuade while other market participants to buy securities with a lower yield, although a month ago the Ministry of Finance to satisfy almost all requests for purchase of Government Bonds, with the yield of government securities with repayment after the year 2009 stood at 27-29% per annum, which is the maximum for the past 10 years.

Therefore, the Ministry of Finance will continue to reduce the level of yield Government Bonds, which makes this instrument, given the current macroeconomic situation, all the less interesting. Continued decline in yield on the nine-month and annual Government Bonds confirms our view that the Ministry of Finance will not attract new loans at any price, because the auctions on sale of Government Bonds are not the only opportunity for the government to raise funds.

Because at the moment the banking system lacks liquidity, we believe that the demand for Government Bonds by private investors in the near future will remain low , - analysts said ING Wholesale Banking Ukraine. Therefore, MOF is unlikely during the September-November to bring significant amounts of funds on the stated return.

 

Alexander Kirichenko

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