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Europe/CIS regional fixed income market watch – April 2021

  • On 15 April 2021, Georgia successfully priced a US$ 500mn, 5-year Eurobond, with 2.750% coupon and 2.875% yield
  • Apart from Georgia, Ukraine tapped international debt markets in April 2021 by placing a US$ 1.25bn, 8.1 year Eurobond
  • Several regional central banks tightened monetary policy in April

Portfolio flows to Emerging Markets (EMs) picked up in April 2021, reaching US$ 45.5 according to Institute of International Finance. US$ 14.2bn went to stocks (mostly to china – US$ 13.5bn), while the rest was invested in fixed income securities.

The escalation of the situation near the Ukraine border in the first half of April 2021 was followed by the announcement of sanctions against Russia by the Biden administration, blaming Russia’s foreign intelligence service for the SolarWinds hack. The sanctions banned US financial institutions from trading in newly issued Russian state securities, known as OFZs, and bonds issued by the Russian central bank and National Wealth Fund. Notably, this was anticipated by markets, with the share of non-residents in rouble-denominated OFZs, dropping to a 5-year low of 20% in March. According to some analysts, the new issue restrictions were likely the mildest action the White House could have taken. Going forward, the greatest threat to the Russian assets will be a ban of trading in the active secondary market.

Following the tensions in Russia’s financial markets, on 23 April the central bank of Russia increased the key rate by 50bps to 5.00%, following a 25bps rise in March 2021. The tightening of the monetary policy came in on the back of weak rouble and elevated inflation and geopolitical risks. The central bank also signaled that more increases could follow. Apart from Russia, the central banks of Armenia (May 4th), Ukraine (April 16th) and Georgia (April 28th) also tightened monetary stance, while Turkey’s new central governor maintained the interest rates unchanged (at 19%), but signaled that it could loosen policy if inflation showed signs of slowing.

On 15 April 2021, Georgia successfully priced a US$ 500mn, 5-year Eurobond. The coupon rate for the bond was determined at 2.750%. The Eurobond was met with strong investor demand from the US, UK and Europe, with orders reaching US$ 2.0bn at peak. Initially, price expectations were in the range of 3.0%-3.25%, however due to strong demand, Georgia managed to achieve 37.5bps tightening over the course of book building. The final yield of the transactions was determined at 2.875%, representing c. 207bps spread over comparable US treasury (UST 0.750% due Mar 2026). The new GEORGIA 26 Eurobond, which was priced at 2.875% was trading at 2.61% by the end of April 2021, indicating strong demand for the instrument.

Apart from Georgia, Ukraine tapped international debt markets in April 2021 by placing a US$ 1.25bn, 8.1 year Eurobond. The yield of the bond was determined at 6.875%, representing c. 562bps spread over comparable US treasury. Notably, the new Eurobond bears the lowest coupon among the outstanding Eurobonds of the country and is the lowest coupon achieved by Ukraine since 2011. Notably, this placement comes after the increase in geopolitical risks in 1Q21 and early April. However, with the de-escalation of the situation in the second half of April, investor interest towards the Ukraine debt instruments recovered, (namely, yield on UKRAINE 26 decreased from 6.6% in the beginning of April to 6.0% by end of the month) making the April 21 placement a success.

Yields on regional sovereign Eurobonds narrowed for most of April 2021 (please note bond yields and prices move in the opposite direction). The new GEORGIA 26 Eurobond, which was priced at 2.875% was trading at 2.61% by the end of April 2021, indicating strong demand on the instrument. Among other regional Eurobonds, TURKEY 26 was the best performer, with the yield narrowing by 66.5bps in April 2021. Yields on UZBEK 24 and BELARUS 27 also declined in April by 43.4bps and 31.3bps, respectively. Demand on other regional Eurobonds was also strong with yields declining in the range of 10-20bps. Investor sentiments towards Ukraine deteriorated in April 2021, on the back of increased geopolitical risks. Consequently, UKRAINE 26 was the only Eurobonds from the region whose yield increased in April 2021 (by 9bps). Notably, the regional Eurobonds have performed relatively well in April 2021, evidenced by lower spread to respective US treasuries (spreads declined in the range of 5-55bps in April).


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