Demand is growing in the interbank market, fueled by geopolitics.
The hryvnia in the retail market has already reached the level of 29.3 USDUAH. We found out what and why is happening with the hryvnia exchange rate, as well as with the demand for Ukrainian securities after Russia recognized the independence of «LNR» and «DPR», Khronika.info reports with reference to Focus.
As early as February 21, the rate in exchangers was no higher than 28.65 USDUAH (selling rate), and the official rate of the NBU was set at 28.34 USDUAH. However, already on February 22, the hryvnia began to sharply devalue — the official NBU rate was at the level of 28.48 USDUAH, but in exchange offices and banks the selling rate reached 29.2-29.35 USDUAH. One of the reasons is the panic on the interbank market due to Russia's recognition of the independence of the «LNR» and «DPR», that is, the territories occupied by the aggressor country.
Already above 29: what is happening with the exchange rate in the interbank market
Anton Kurinny, chief trader of the Treasury and Financial Markets Department of OTP Bank, says that the interbank market reacts nervously to the latest news, and if on Monday, February 21, quotes were at the level of 28.6-28.65 UAH/USD, then on Tuesday, February 22, it was already 28.9-29 USDUAH in the morning.
«Interbank (MVRU) predictably opened with a sharp jump in the rate. Already the first agreement in Bloomberg passed at the rate of 28.9 USDUAH, which is almost 30 kopecks higher than the level at the close of the market on Monday. The trading was especially dynamic in the first 20 minutes — at this time the quotes reached the maximum levels of the day 29.10-29.12 USDUAH. But the active participation of the NBU stopped the growth and even returned the rate beyond the 29.0 USDUAH line. Most of the day the trades were held in the range of 28.92-28.97 USDUAH. And only by the evening they rose to 29.03-29.07 USDUAH», — said Anna Zolotko, director of the department of treasury operations «Unex Bank».
The banks said that 22 February, the demand for the currency was several times higher than the supply, which, obviously, could not but affect the growth of quotations. «Demand significantly exceeds supply amid geopolitical news. Sellers moderately come out with a sale only after the regulator appears on the market and calms him», says Kurinny.
According to Anna Zolotko, in general, transactions worth $412 million were concluded in Bloomberg (system) per day. This is twice the daily average. «On the other hand, the activity of currency sellers today was restrained», Zolotko noted.
Of course, in such a situation, the National Bank could calm the market, which, in fact, it did. On February 22, the NBU carried out interventions for banks to sell the dollar at auctions «request for a better rate». According to Anna Zolotko, tentatively the NBU «poured» currencies of the order of $250-300 million.
Experts believe that it is too early to talk about the stabilization of the situation with the exchange rate, and even more so about the rollback of the exchange rate to its previous values (28.2-28.5 USDUAH). According to Kurinny, the rate will be at the levels of 28.8-29.4 USDUAH in the near future, but only on the condition that there is no next piece of news that could affect the market. «To pull back or to strengthen the hryvnia, more positive is needed, therefore, rather, it will consolidate somewhere and will stand still», Kurinny believes. In turn, Anna Zolotko also believes that news (especially political) today have a decisive role. Due to the negative information background, investors are leaving Ukrainian securities (OVGZ) — after the sale of securities, non-residents immediately want to «go into the currency», which increases the demand for the currency, puts pressure on the exchange rate.
«The market is still very nervous and ready to react to any news. Even a slight easing of the informational background can reverse the market. After all, the deadlines for paying taxes, calculating salaries are approaching, and business requires hryvnia liquidity. However, one should hardly count on the strengthening of the hryvnia on Wednesday, February 23. After all, on February 23, the Ministry of Finance must pay the holders of government bonds more than UAH 20 billion. This is a rather significant additional factor of pressure on the hryvnia», — noted Anna Zolotko.
Bonds and Eurobonds: what happens to securities quotes
As already noted, negative messages have a direct impact on the securities market — Ukrainian government bonds and Eurobonds, the demand for which is falling, and investors are selling them in a panic, trying to fix the profitability. Meanwhile, bond rates are rising amid political tensions.
«Investors in Ukrainian Eurobonds, of course, react very nervously to all the news about Russia's aggression against Ukraine and, if possible, reduce investments in Ukrainian assets. Geopolitical tensions continue to be the determining factor for Eurobond yields, which have skyrocketed following the Russian Federation's decision to recognize the self-proclaimed republics and deploy troops there. On Tuesday, February 22, the yield reached more than 30% in the morning on Eurobonds maturing in six months and exceeded 12% per annum on issues maturing in 2032-33, although not significantly during the day, but fell on the news about sanctions against Russia», — comments Taras Kotovich, Senior Financial Analyst at ICU Group.
He is confident that investor behavior will remain very cautious, because de-escalation should not be expected in the near future.
Analyst Ivan Uglyanitsa explained that, in general, the situation with Ukrainian Eurobonds has not changed significantly — foreign investors continue to sell securities, local investors buy, but purchases are on a much smaller scale compared to the exit of foreigners. «Until the situation stabilizes in terms of both the actual and the news, the withdrawal of foreigners from the papers, I think, will continue. This, in particular, is facilitated by the global fund, the expectation of an increase in base rates, and so on. The forecast for the prices of Ukrainian Eurobonds depends purely on the political situation, including the unpredictable reaction, the next steps of the Russian Federation, so it is difficult to predict anything here. But for local investors who are accustomed to this level of risk, now Ukrainian bonds are very attractive, despite the fact that local investors do not have access to other instruments with similar yields in Ukraine», Uglyanitsa said.
Yuriy Alekseenko, director of the investment department at OTP Capital, noted that the market for Ukrainian foreign bonds (Eurobonds) has been very volatile in recent weeks, given the possible full-scale aggression of the Russian Federation against Ukraine.
«Yields grew to 13% -25%, the highest rates were achieved on the shortest Eurobonds (redemption in September 2022). At such high levels of return and risk, demand was predominantly shaped by a domestic investor willing to buy at such prices the risk of military escalation. Non-residents will avoid investing in Ukrainian Eurobonds during a possible military conflict,” Alekseenko says. And he adds: the interest of foreigners in Ukrainian securities will grow only after the threat from the Russian Federation is leveled, and Ukraine receives international support.
«We expect that the market will recover to the levels of 10%-14% (Eurobond rates — ed.) when the further Russian invasion of Ukraine ceases. To the levels of the first quarter of 2021, when demand was high both from non-residents and from local investors, and this is a yield level of 4.5% -6%, the market will not recover in the coming year», the expert warns.< /p>
The situation is similar with domestic government bonds — foreign investors are trying to sell, leaving their earlier investments in government bonds. However, despite the difficult information background, on Tuesday, February 22, the Ministry of Finance managed to sell securities worth UAH 3.48 billion at government bonds auctions. The ministry noted that the greatest demand was concentrated on 3-month government bonds in hryvnia, from the placement of which UAH 2.9 billion was attracted to the state budget. The weighted average rates on all securities of the auction held on February 22 ranged from 11.6% per annum for 3-month government bonds to 13.09% for securities maturing in 4 years. In addition to hryvnia securities, the Ministry of Finance offered investors government bonds in euros at a rate of 1.75% per annum, from the sale of which 7.2 million euros were received.