Analysts believe Finance Ministry's bond yield won't rise
2011-01-11 17:28:24
The Ministry of Finance of Ukraine, which late last year received a loan from the International Monetary Fund (IMF), is unlikely to settle for an increase in profitability at the first in 2011 government bond auctions, despite the imminent redemption of government securities worth of more than UAH 1 billion on Wednesday (1 USD - 7.96 UAH), analysts say.
"The Ministry of Finance states that it has enough of foreign exchange funds. Therefore, despite the need to pay off on January 12 the government bonds worth over one billion hryvnias, it is not going to improve profitability," Erste Bank said in a statement.
Due to the intractability of the Ministry of Finance and yet the unreadiness of investors to place money with a low income, first auctions are likely to be held with poor results, predicts Serhiy Fursa with Astrum Investment Company.
"The position of the Ministry of Finance is stable and the market will have to meet the wishes of the government in terms of profitability. At the same time, at the moment we can not say with reasonable certainty at what auction the market proposals will be below the striking rates of the government," the expert emphasized.
The Ministry of Finance plans to sell government bonds maturing July 13, 2011 (maturity period of 182 days), August 31, 2011 (231 days) and December 12, 2012 (700 days).
Today, we are likely to see demand only for "short" government bonds with higher, than the Finance Ministry would like, yields. Therefore, we expect the lack of placements," Erste Bank says.
ING Bank analysts do not expect a substantial increase in demand from market investors, even with a small increase in yields on Tuesday, at the same time they do not rule out that the Ministry of Finance will traditionally try to sell papers to the state banks.
"Even if the government decides to raise the yield to increase the amount of drawing on the background of the upcoming large redemptions, we predict no significant growth in demand from private investors today. In particular, the volume of bank liquidity is moderate (UAH 18.9 billion), and rates in the monetary market are still far higher than two or three months ago," ING said in a commentary.
Since mid November last year the bulk of auctions have been held without success with the issuer refused to raise the profitability of the obligations falling to 5.5-10%, and investors demanded 3-4 percentage points higher.
As an alternative source of raising funds the Ministry of Finance used the issue of government bonds to the authorized capital of state companies, in particular NJSC Naftogaz of Ukraine, as well as external borrowing.
As reported, according to preliminary data of the State Treasury, Ukraine's total government borrowing amounted to UAH 123.4 billion, while the repayment and servicing of public debt received UAH 42.2 billion. Thus, the net increase in public debt was UAH 81.2 billion.