Highlights
• As expected Fed kept its policy rate unchanged and maintained dovish tone at its July 28 meeting. Fed chair, Jerome Powell underlined the importance of “course of the virus” for US economic outlook and said that “the pace of the recovery looks like it has slowed” as COVID-19 cases grew in June, based on high-frequency data monitored by the Fed. 2Q20 economic slump turned out to be the worst in American history. US GDP dropped at an annualized rate of 32.9% in 2Q20, in line with the Bloomberg consensus of roughly 35%. Eurozone economy also shrank at a record 12.1% in 2Q20, with Germany’s GDP contracting by 10.1% in 2Q20, the lowest rate in 50 years. • Rush for safe-haven assets resumes as COVID-19 cases pick-up and numbers for US and EU economy are worse than expected. 10 year US treasury real yields bottomed at -1.0% signalling investors’ readiness to pay for safer assets. The rise of bond prices and falling yields also indicate that markets expect Fed to keep low-interest rates for a while. • From regional central banks Russia lowered key rate by 25bps to 4.25%, Azerbaijan by 25bps to 6.75%, Kazakhstan by 50bps to 9.00%, Belarus by 25bps to 7.75% and Georgia by 25bps to 8.00%, while other monetary authorities kept policy rates unchanged. As of 5 August 2020, monetary policy rate is at 4.50% in Armenia (-50bps), at 6.00% in Ukraine (-200bps) and at 8.25% in Turkey (-50bps). • All regional currencies depreciated against dollar in the range of 0.6%-4.4% over July, with GEL performing relatively well (0.6% depreciation) while RUB, KZT and UAH depreciated by 4.4%, 3.9% and 3.7%, respectively. TRY weakened by 1.7%, BYN by 1.1% and AMD by 1.0%. • Regional Eurobonds traded mixed in July. Turkish Eurobond (4.8% YTM; 100.5 price) was the worst performer, with the yield jumping by 175bps reaching 4.8% by 31 July 2020. Other regional Eurobonds performed relatively better in July, with Georgia’s yield narrowing the most, down 67bps to 3.1% (3.1% YTM; 102.5 price). Azerbaijan (2.4% YTM; 108.12 price) and Belarus (6.3% YTM, 101.3 price) also performed strongly, with yields declining by 45bps and 40bps, respectively. Other Eurobonds also strengthened, with yields on UZBEKISTAN 24 (2.7% YTM; 106.8 price), ARMENIA 25 (3.8% YTM; 114.1 price) and KAZAKHSTAN 24 (1.4% YTM; 109.9 price) down by 38bps, 35bps and 20bps, respectively. Notably UKRAINE 21 (4.5% YTM; 103.4 price) declined by 11bps in July and is trading at a lower yield compared to TURKEY 21 for the first time. Yield on Russian Eurobond remained mostly flat in the reporting period.
• Among Georgian placements, GOGC 21 was the top performer with the yield dropping by 99.6bps to 4.8% in July while GRAIL 22 decreased by 59bps in the same period. Yields on other corporate Eurobonds also lowered in the range of 50-60bps in July. • Georgian Global Utilities, water utility and renewable energy business under Georgia Capital, successfully placed first ever green bond from Georgia. Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.
