A new batch of statements by US politicians about Moscow's plans set off a chain reaction, frightening portfolio investors.
The maneuvers of Russian troops near the border and the disturbing news about the risks of a Russian invasion at the suggestion of Western politicians have created tension for the Ukrainian economy. The Cabinet of Ministers and the NBU are coping with the challenges. But the degree of anxiety, sometimes turning into panic and even hysteria, still harms the country's finances.
The flow of negative news with almost « ;exact date» The Russian invasion of Ukraine has once again stirred up the financial markets. A new batch of statements by American politicians about Moscow's plans set off a chain reaction, frightening portfolio investors. They did not inspire optimism and the decision of a number of countries to evacuate their citizens and diplomats from Ukraine.
To everything else, the nervousness was added by the story of the sudden ban on the plane of the SkyUp airline to enter the airspace of Ukraine. The owner of the aircraft was harassed by insurance companies, warning that if something happened, they would not cover the losses.
Shortly after that, a series of unverified statements about a possible closure of the sky over Ukraine began to pour down. And although the government found a way out of the situation by reserving almost 17 billion hryvnia as insurance for airlines, the bad news did its job.
A wave of geopolitical tensions and panic also touched global markets — against the background of the threat of military operations in Eastern Europe and possible sanctions against the Russian Federation, oil quotes jumped to a record high. In addition, stock indices of Japan and the EU fell on Monday, and the Russian stock market closed down as well.
The hryvnia is on the defensive or victims of negativity
After a negative news background over the weekend, associated with escalation risks, Ukrainian government bonds fell in price, and the hryvnia exchange rate sharply «dipped» at the opening of the interbank As a result of trading, the NBU on Tuesday raised the exchange rate by 50 kopecks at once — to 28.53 hryvnia/dollar.
The foreign exchange market reacted nervously yesterday, as expected, but the panic mood was more than expected, analysts of «OTP Bank& #187;. According to them, in the first hour of trading, the market went from 28.30 to 28.75 hryvnia/dollar, despite the fact that the NBU left at the very beginning of the session, showing that it was monitoring the situation.
«The first intervention with a small volume did not calm the market, so the presence of the National Bank was observed throughout today's session. The regulator made it clear that it would contain panic attacks on the currency and the market eventually rolled back from the heights of 27.75 and traded at the levels of 27.40-27.60», the bank explained yesterday, estimating that the NBU sold about 300- 400 million dollars.
The exchange rate also fell sharply in January due to the risks of a possible escalation. The weather on the market was then made by non-residents — foreign portfolio investors, hastily withdrawing from Ukrainian domestic government bonds. Selling securities at a discount, they bought the currency, putting pressure on the rate.
Now the situation is similar to what it was a few weeks ago, says the head of sales of treasury products of the bank «Avangard» Yuri Krokhmal. But by now, some non-residents have already left Ukrainian securities, and therefore, probably, their influence on the market will no longer be so problematic. For example, if in January non-residents reduced their government bonds portfolio by $2-3 billion a week, then last week they «merged» securities for 400 million hryvnias.
«This is the second time this year when the demand for currency is becoming rushed, but so far the National Bank has managed to balance the market and, despite the rise in prices, everyone can buy currency & # 187;, — said the expert. In his opinion, this balance adds optimism and gives high chances that the situation on the foreign exchange market will remain under control. Unless, of course, the external conflict remains only at the diplomatic level.
The interviewed experts speak very carefully and reluctantly about speculation in the foreign exchange market. Attacks of this kind may have taken place on the interbank market during Monday. But, as noted in & # 171; OTP Bank & # 187;, the impression was that the speculators themselves could suffer. «No one expected such persistence of interventions from the regulator, so there is an opinion that the speculator stayed on the sidelines, mostly client orders were closed», — the bank's analysts explained.
The course correction will take place after the cessation of the pressurizing news background, experts say. «Any negative hits the exchange rate volatility more than a positive one. The positive must be maintained in order to get a stronger strengthening of the hryvnia», say the experts of «OTP Bank». The problem was that the negative began to form on the weekends, when banks and branches are mostly closed. At the same time, the population rushed to buy the currency, which began to rise in price due to the limited possibilities of the day off.
The foreign exchange market is already practically in the market range, said Vitaliy Shapran, a member of the NBU Council. The corridor of 27.5-28.5 hryvnia/dollar is quite balanced and comfortable for both exporters and importers, the expert noted. According to him, the NBU has enough gold and foreign exchange reserves, and there are enough non-cash volumes on the interbank market to satisfy any even hypothetically large demand in the cash market.
«I allow a couple more bursts of activity, but I think that they act on the market like a vaccine, each time the reaction to the stimulus is less and less. Losses from conservative strategies, when you bought, say, at 29.7 hryvnia per dollar, and then it was possible at 27.9, educate the market well and stabilize it better than any central bank,” Vitaliy Shapran is sure.
Investors panic, rates rise
Due to the wave of panic and negativity, it is becoming increasingly difficult for Ukraine to lend money to finance budget expenditures. The latest batch of statements from politicians in the United States has collapsed prices for Ukrainian Eurobonds.
Even before Monday afternoon, the cost of Ukrainian sovereign Eurobonds fell by 4-6%, GDP warrants — by more than 9%, said the head of the analytical department of the IC Concorde Capital Oleksandr Parashchy. Yields on securities of various issues, as Yuriy Krokhmal specified, jumped to this year's highs — 11-28%. The panic, Paraschik believes, will continue until at least Wednesday.
«In the current environment, geopolitical tension is a key factor determining the yield of Ukrainian Eurobonds. This week they will again be under the pressure of negative news about the escalation of the military conflict by Russia», — analysts of the ICU group confirm.
It is more difficult with the Eurobond market than with the currency one, says Vitaly Shapran. After all, the main operators of this market, as the expert noted, read Reuters, Bloomberg, watch the BBC, CNN or CNBC, and tend to trust the US State Department more than other official sources.
«Plus, it should be taken into account that it takes 10-15 seconds to change the currency position, and Eurobond prices reflect expectations for 1-2-3, and sometimes more years. Therefore, this market will calm down only when all parties to the negotiations around the conflict around Ukraine make it clear that «the incident is over» or «great progress has been made», he explained.
In addition, there is «non-military» a factor why global investors will be less interested in emerging markets now. After all, as rates on US Treasury bonds rise, investment funds and other large players are much easier and calmer & # 171; to sit out & # 187; in risk-free American securities. At least while the world is going through a zone of geopolitical turbulence.
As for domestic government bonds, according to experts, against the backdrop of what is happening, it is also difficult for the Ministry of Finance to raise money in the primary market. While non-residents «dump» It is more profitable for those wishing to buy bonds on the secondary market.
As Eavex Capital analysts specified, in the secondary market, annual government bonds yields are in a wide range of 13.9%/11.8% (purchase/sale). Whereas, for example, last Tuesday at 11.5%, the Ministry of Finance placed three-month securities in the amount of UAH 1.6 billion, but almost no one was interested in issuing government bonds for a year at 12%.
Nevertheless, according to ICU, the Ministry of Finance will not rush to raise government bonds rates now in order to compete with the secondary market and attract large volumes from local investors. At least until there is an urgent need to finance the budget deficit.
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The risks of aggression from the Russian Federation since 2014 have repeatedly created tension for Ukraine and its financial system. And, frankly, at different times it was not possible to cope with these challenges with the same success. So far, the margin of safety created by the NBU and the government allows us, not without losses, but still to withstand the shock wave of panic. This applies to both the hryvnia exchange rate and the obligations of the treasury.
The government also has no plans to violate the payment of debts — the country partially compensates for the closed access to foreign capital markets due to military risks and high rates with official loans from the EU, USA and other creditors. On the other hand, Ukraine, perhaps, has not yet experienced such pressure as over the past few weeks. And the degree of this tension cannot constantly grow, otherwise not even the strongest economy will have enough strength and resources to put out fires.