Monetary policy: Due to increasing concerns on inflationary pressures, regional central banks have tightened monetary policy in July, 2021. At an unscheduled meeting on 15th of July, the Belarusian central bank raised interest rates by 75bps to 9.25%, citing rising global commodity prices and higher domestic inflation expectations as the main reasons for the decision. This is the 2nd time the central bank raised interest rates in 2021, after 75bps increase in April. On 22 July meeting National Bank of Ukraine increased the refinancing rate by 50bps to 8.0% (3rd hike in 2021) and noted that policy rate will be raised further to 8.5% in the coming months and will be maintained at that level until 2Q22. Central bank of Russia followed the suit, raising the key rate by 100bps to 6.5% on 23rd of July. This is the 4th time the central bank raised interest rates in 2021. Central bank governor reiterated that interest rates might increase further in the upcoming meetings, to limit the inflationary pressures (central bank expects inflation to reach 5.7-6.2% in 2021 and revert to the target level of 4% from 2022). National Bank of Kazakhstan also surprised the markets by raising the refinancing rate for the first time in 2021 by 25bps to 9.25%, increased inflationary risks were named as the main reason behind the decision. The central bank also outlined its readiness to raise interest rates further “in case of an increase in pro-inflationary factors”. National Bank of Georgia raised the key rate by 50bps to 10.0% on 4 August, citing “unexpectedly high” inflation at 11.9% in July. This is the 3rd time NBG has raised interest rates in 2021. The regulator reiterated that it will maintain contractionary policy for a protracted period of time and/or will tighten it further, if necessary. NBG also revised economic growth projection upwards to 8.5% for 2021.
FX market: Most of the regional currencies strengthened against dollar in July 2021. Turkish Lira strengthened 2.9% to 8.35/USD by end-July. Ukraine’s Hryvnia also performed well, strengthening by 1.9%. After the surprising hike in the refinancing rate in July, Belarusian Ruble strengthened by 1.3%. Armenian Dram and Georgian Lari also performed well, strengthening by 1.8% and by 1.6%, respectively.
Georgia money market: In July, GEL 80mn treasury notes were sold. Notably, Georgian treasury yield curve flattened in July: weighted average yield on 2-year and 5-year instruments stood at 9.0%, while the rate for 10-year instrument averaged at 8.93%. GEL 15mn T-bills were sold in the same period, with weighted average interest rates on 6-month instruments set at 9.43%. The share on non-residents in treasury holdings remained unchanged at 13% of total in July.
Regional sovereign Eurobond market: Regional Eurobonds traded mixed in July 2021. ARMENIA 25 continued strong performance in July, with the yield narrowing by 18.4bps to 3.2%. BELARUS 27 also performed well, with the yield down 18.3bps.TURKEY 26 and RUSSIA 23 also performed well, with yields narrowing by 13bps, while YTM on AZERBAIJAN 24 was down 5bps in the same period. UZBEK 24 and UKRAINE 26 performed poorly in July, with yields widening by 14.4bps and 15.9bps, respectively. YTM on Georgia’s new Eurobond has remained mostly flat during July at 2.25%. On 12 July, 2021 Uzbekistan returned to global debt markets with dual-tranche US Dollar and Uzbek Soum transaction. Uzbekistan successfully placed a 10-year US$ 635mn Eurobond with 3.9% coupon rate along with a 3-year, UZS 2,500 (c. US$ 235mn) Eurobond with 14.0% coupon rate. Strong investor demand led to 3.5x and 1.5x oversubscription for the USD and UZS tranches, respectively.
Georgian corporate Eurobond market: In July, yields on Georgian corporate Eurobonds narrowed. Georgian banks performed relatively strongly, with yields on BOG 23 and TBC 24 narrowing by 25.5bps and 27.1bps, respectively. GEOCAP 24 also performed well, with yield down by 30bps in July. Yields on other corporate Eurobonds narrowed in the range of 3-6bps in July. Yield on newly issued Georgian Railway’s Eurobond has remained mostly unchanged at 3.77% by end-July representing c. 150bps spread over sovereign. Notably, in July 2021 JP Morgan led Ukrainian Railway’s (-/-/B) $300mn, 7.875% Eurobond issuance. The bond mature in 2026. The initial price thoughts of 8.000% area were finalized at 7.875%. The peak orderbook stood at $600mm (at 2.0x oversubscription).
Georgian local bond market: In July 2021, Georgian Leasing Company (GLC) successfully placed dual tranche US$ 12mn, 2-year bond along with first ever EUR-denominated placement in Georgia of EUR 2.0mn 2-year instrument. Strong investor demand pushed interest rates to unprecedentedly low levels for Georgia, with coupon rate for US-denominated bond set at 5.75% and 4.75% for EUR-denominated notes. Notably, GLC is the frequent debt issuer on Georgian stock exchange, making July 2021 placements 6th and 7th issues for the company.
Global markets: In its July economic update, IMF maintained global economic growth forecast unchanged at 6.0% in 2021, however growth forecast for developed countries was revised upwards, while it reduced growth projection for emerging markets.
On 27-28 July meeting, US Fed kept interest rates and asset purchases unchanged, and noted that the economy is making progress towards the Fed’s goal of maximum employment and price stability. US 2Q21 GDP expanded by 6.5%, below the analyst expectations of 8.5% growth.
Eurozone economy returned to positive growth after a prolonged downturn, with GDP up 13.7% y/y in 2Q21 (+2.0% compared to 1Q21), after 0.3% contraction in 1Q21.
Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.
