Highlights
• November turned out to be a good month for regional fixed income securities. After lifting global equity markets, positive vaccine news improved investors’ risk sentiments and increased interest towards Emerging Markets (EMs), including CIS and Eastern Europe. According to Institute of International Finance’s (IIF) recent report, non-resident portfolio flows were strong to EMs in October-November, with debt inflows in EMs at US$ 36.7bn in November after US$ 11.7bn of inflows in October. • The ECB published its Financial Stability Review, mentioning that the euro area faces “a fragile and uneven recovery” amid continued pandemic. It also mentions that a low interest rate environment, particularly in the developed countries, incentivizes investors to shift to riskier assets to generate higher returns. According to the report despite increasing corporate vulnerabilities (deteriorated credit quality and increasing number companies with negative rating outlooks) credit spreads have reached pre-pandemic levels for almost all companies with the rating higher than “B” (in the BB rating category November yields remain slightly above the levels found in February). However, according to the ECB credit spreads appear “tight” considering the near-term economic outlook, particularly for the high-yield issuers. • The first week of November has seen a shake-up in Turkey’s governing economic bloc. First, President Recep Tayyip Erdogan fired the country’s central bank governor, while later Erdogan’s son-in-law resigned as Turkey’s finance minister. Erdogan appointed a UK-educated former finance minister Naci Agbal as a central bank governor. The news was welcomed by the investors, with Lira experiencing its biggest one-day rise in two years on the following day. On the first monetary policy meeting chaired by the new governor, the CBT raised interest rates by 4.75ppts to 15%, the biggest hike in 2 years. Immediately, after the news Lira further strengthened by 3%. • Despite high criticism and low investor confidence about unconventional economic policies Turkey managed to outperform all G20 peers by posting 6.7% y/y growth in 3Q20 in expanse of depreciated Lira and double digit inflation. Speed of recovery was mainly driven by fiscal stimulus package (12.8% of GDP) and government pushed bank lending (+41.5% y/y in 3Q20). This was also supported by non-orthodox monetary policy actions keeping interest rates low while inflation was skyrocketing due to weakened Lira. • On the back of investor optimism, most of the regional currencies strengthened in November. Turkish Lira was the clear winner, with the currency appreciating by 6.2% in November, followed by Russia’s rubble, which strengthened by 3.9% in the same period. BYN of Belarus and Kazakh tenge also gained, up 1.7% in November. GEL and Armenian dram were the only regional currencies that depreciated in November. • Among regional Eurobonds, BELARUS 23 was the clear winner of the month, with the yield dropping by 221bps to almost 6-month low of 5.2%. Notably, Belarusian leader Alexander Lukashenko hinted that he would step down as a president once the new constitution is adopted, the day after the visit from a Russian ally Sergei Lavrov. Notably, it’s been one month after the imposition of sanctions by the EU and US against Belarusian officials. TURKEY 21 was the close follower, with the yield dropping by 183bps to 2.7%, level last seen in June 2020. Ukraine 21 also performed strongly, with the yield down by 132bps in November. Yields on Azeri and Armenian Eurobonds dropped by 105bps and 110bps, respectively. Yields on other regional Eurobonds also declined in November in the range of 18-77bps. • Among Georgian placements, GOGC 21 was the best performer, with the yield down by 200bps, followed by BOG 23, which was down 98bps in the same period. Other Georgian Eurobonds also gained in November, with the yields dropping in the range of 25bps-63bps.
Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.
