Bonds: Bond portfolios decline
Without primary auctions, and due to debt repayments and hryvnia appreciation, all bondholder groups saw a decline in government bond holdings. This week, due to a cancelled auction, we can see just slight changes in all portfolios.
The largest decline was seen in the portfolios of banks, as they received redemptions from both UAH and USD-denominated paper; other bills in FX were repriced with a new and stronger hryvnia exchange rate. Banks' portfolios declined by UAH7.3bn (US$267m) to UAH340bn (US$12.5bn). The portfolios of individuals slid by UAH0.9bn (US$33m) to UAH8.6bn (US$315m).
Non-banking investors purchased the new portion of UAH-denominated bills, but their investments were not enough to compensate for redemption and the decline in FX-denominated portfolios due to the stronger hryvnia. Their portfolios slid by UAH1bn (US$37m) to UAH51.9bn (US$1.9bn).
Most of the decrease in foreigners' portfolios was in UAH-denominated instruments. Last week, their UAH portfolios declined by UAH2.8bn (US$103m) to UAH115.5bn (US$4.2bn). Our best guess is that the decline was mostly due to debt redemptions, not selling bills in the secondary market. This group's total portfolios declined by UAH3bn (US$110m) to UAH118bn (US$4.3bn), which in UAH terms is larger than this year's low of UAH2bn seen on 8 January at UAH116bn. But in US$ terms, it is slightly below this level due to today's weaker hryvnia by US$0.6bn.
ICU view: The general outlook on Ukrainian debt remains restrained. We expect foreigners will continue to reduce holdings in local-currency bills. However, Ukrainian banks can buy some paper from foreigners, especially due to lack of primary auctions.
Bonds: NBU and Treasury support liquidity
The liquidity dynamic become positive last week after falling to UAH170bn on Tuesday. By the end of the week liquidity recovered to UAH187bn. This week, we will see a positive balance of Treasury and NBU operations, with a liquidity increase towards UAH200bn.
FX market conditions turned positive (see comment below), and the NBU purchased extra supply of hard currency injecting UAH6.8bn into banking-sector liquidity. At the same time, banks exchanged UAH1.6bn of reserves in cash.
However, NBU paid to the budget UAH42.7bn of its profit from 2019, which allowed the Treasury to increase expenditures. In total last week, expenditures exceeded revenues by UAH8.3bn, having a positive impact on liquidity.
Thanks to these injections, banking-sector liquidity was up UAH17bn from it's lowest level of UAH170bn seen last Tuesday, before rising at the end of the week to UAH187bn.
ICU view: This week, we anticipate a positive impact from NBU and Treasury's operations and a further increase in liquidity. The total amount of liquidity will move towards and close to UAH200bn.
