Highlights • After real yields on US Government securities being negative for most of the year, real yields on some of the corporate bonds also moved to negative territory. Unprecedented central bank support for the corporate bond market has pushed corporate bond prices up, while dragging yields down. Real yields on some of the high-quality, short-term bonds have slipped below zero, which means that some investors are willing to accept a loss for buying corporate bonds, after adjusting for inflation. This is not expected to change materially in the near future as interest rates projected to remain low, while inflation expectations are building up. Negative real yields on investment grade corporate bonds forces investors to look for alternative investment opportunities. After shifting from Government securities to investment grade corporate bonds, ‘Yield-starved’ investors now will turn to higher return “junk-bond markets”. • All regional central banks kept policy rates unchanged in August, with the exception of Georgia, where policy rate was cut by 25bps to 8.00%. • Most of the regional currencies remained flat during August, with BYN of Belarus and TRY of Turkey being exceptions. BNY depreciated by 8.7% in August due to continued political turmoil in the country, while TRY depreciated by 5.3% in the same period. • Regional Eurobonds traded mixed in August. Not surprisingly BELARUS 23 (7.5% YTM; 98.7 price) was the worst performer of the month. The yield on BELARUS 23 reached 9.7% by 17 August, before retreating to 7.5% by end of month, however this level still remains significantly higher compared to peer countries, explained by political instability. From other regional Eurobonds Turkey (3.8% YTM; 101.0 price) performed strongly with the yield declining by 100bps in August, followed by GEORGIA 21 (2.2% YTM; 102.8 price) which narrowed by 91bps in the same period. UKRAINE 21 also performed well, with the yield down by 74bps, while yield on ARMENIA 25, AZERB 24 and Kazakh 24 declined by 32bps, 29bps and 17bps, respectively. Yields on other Eurobonds remained relatively flat in August. • Among Georgian placements, GRAIL 22 (4.9% YTM; 105.1 price) turned out to be the best performer of the month, with the yield down by 124bps, while GOGC 21 (4.1% YTM; 101.7 price) another quasi-government entity narrowed by 75bps in the same period. Among Georgian banks BOG 23 (4.5% YTM; 104.0 price) performed strongly, with the yield down by 119bps, while yields on TBC 24 (4.8% YTM; 103.3 price) and GEOCAP 24 (7.6% YTM; 95.5 price) were down by 54bps and 56bps, respectively. • The price of the newly issued GGU Eurobond – CGEOLN 25 – has remained stable, trading at 101.1% of par translating into a yield of 7.47% as of 31 August, 2020. Yield on SILKNET 24 (9.2% YTM; 105.5 price) remained mostly flat during August. • Notably, on 31 August Georgian Leasing Company successfully placed a 2-year, 7.5%, US$ 10mn bond on local market.
Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.
