Fixed Income Analysis /

Europe/CIS regional fixed income market watch – March 2021

  • US treasury yields remained elevated throughout March 2021

  • March 2021 saw another shakeup in Turkey’s economic block

  • Apart from Turkey, several regional central banks tightened monetary stance in March 2021, namely Russia and Georgia

Ana Nachkebia
Ana Nachkebia

Senior Analyst - Fixed income, Transportation, Telecommunications, Construction

Eva Bochorishvili
Giorgi Iremashvili
Galt & Taggart
13 April 2021
Published byGalt & Taggart

US treasury yields remained elevated throughout March 2021 (at 1.73% by 30 March 2021), despite insurance from the FED to maintain near zero interests rates until at least 2024. In Europe, in order to limit the negative effects of increasing interest rates in US, the ECB increased the weekly pace of its emergency bond-buying program from EUR 14bn to EUR 21.1bn in the second half of March.

Portfolio flows to Emerging Markets (EMs) in March turned negative, with c. US$ 4.8bn exiting EM markets up to March 26 according to Institute of International Finance.

March 2021 saw another shakeup in Turkey’s economic block. Over 20-21 March weekend, Turkey’s Erdogan fired the central bank governor - Naci Agbal - who has been in the job for just four months. Since his appointment in November 2020, he raised interest rates in Turkey by a total of 8.75% to 19% by 19 March, 2021 (last hike happened on 19 March meeting, raising the key rate by 200bps). Sahap Kavcioglu, an academic and newspaper columnist became the new central bank governor, who shares Erdogan’s view of low-interest rate environment, against the mainstream economic theory. Lira depreciated by a record 14% on the news. Investors are now waiting for the first policy meeting under the new governor which is expected to take place in the first half of May.

Apart from Turkey, several regional central banks tightened monetary stance in March 2021. On its 19 March meeting, Russian central bank raised interest rates by 25bps to 4.50% on the back of increased inflationary and geopolitical risks. In Georgia too, NBG increased its policy rate by 50bps to 8.5% citing increased inflation risks stemming from price increases in international commodity markets, higher production costs due to pandemic and persistence of depreciated exchange rate.

On 12 April 2021, Georgian sovereign Eurobond will mature. Notably, the government is actively working with international investment banks to refinance the Eurobond by tapping international capital markets in the coming weeks.

Yields on regional sovereign Eurobonds widened in March, 2021 in line with the hike in US treasury yields. TURKEY 26 was the worst performer of the month with the yield widening by169bps in March, on the back of deteriorated investor sentiments. BELARUS 27 also performed poorly, with the yield increasing by 119bps in the same period. Yields on other regional sovereign Eurobonds widened in the range of 10-30bps in March 2021.

Capital outflows from EMs in March 2021 have caused depreciation of most of the EMs’ currencies, including regional ones:

  • On the back of firing the central bank Governor of Turkey, Lira depreciated significantly in the second half of March. By end-March 2021 Turkish lira was trading at 8.25/USD the highest level since November 2020. Some analysts expect Lira to depreciate further after the upcoming policy meetings, where interest rates are expected to be cut.

  • GEL depreciated by 2.9% against dollar in March, 2021 reflecting mix of different factors, including continued political instability in the country, a potential 3rd wave of COVID-19 and negative expectations from Turkish Lira depreciation.

  • Russia’s Rouble depreciated by 1.4% in March 2021, on the back of growing concerns of broadening sanctions from US.

  • Kazakh Tenge also depreciated in March 2021 by 1.9%, reflecting the outflow from EMs by investors in March.

In March 2021, Georgia Capital priced a US$ 65mn tap issue to be consolidated and form a single series with the company’s existing US$ 300mn 6.125% senior notes due 2024. The notes were listed on the Irish Stock Exchange. The company intends to use approximately US$ 35mn of the proceeds to fund capital allocations to its portfolio companies and retain approximately US$ 30mn for general corporate purposes. Yield on GEOCAP 24 widened in March 2021 by 42.5bps to 5.65%.

On 26 April 2021, Georgian Oil and Gas Corporation (GOGC) will reach maturity, thus we have removed GOGC from the analysis (see our terminating report). Other Georgian corporate Eurobonds traded mixed in March 2021. Yields on Georgian banks narrowed, down by 25-26bps for BoG 23 and TBCG 24. Notably, on 31 March 2021 Fitch Ratings revised its outlook from ‘Negative’ to ‘Stable’ on three Georgian banks – Bank of Georgia, TBC Bank and Libery Bank – maintaining long-term credit ratings unchanged. Yield on CGEOLN 25 (GGU) declined by 17.1bps in March, trading at 6.5% YTM by 31 March, 2021.