Highlights • September turned out to be a bumpy month for regional fixed income securities. Capital flows to emerging markets turned negative in September after 5 months of positive flows. According to Institute of International Finance emerging markets debt posted an inflow of US$12.9bn, while US$ 10.8bn worth of equities were sold during September, of which US$ 4bn left Chinese stocks. The reversal of capital flows, creates difficulties for emerging countries, making domestic funding conditions tougher and causing depreciation of local currencies. TRY turned out to be the worst performer among the regional currencies, depreciating by 5.1% during September. Notably, to tackle lira’s fall, on 24 September Turkey’s central bank surprised the markets by raising the key rate by 2%, against Recep Tayyip Erdogan’s push for lower rates. • The situation in the Caucasus region escalated in the end of September, when clashes in Nagorno-Karabakh re-erupted, leading to declaration of war between Armenia and Azerbaijan. Military conflict was reflected in the respective bond performance with the yields for sovereign Eurobonds of both countries widening in the last week of September. Not surprisingly ARMENIA 25 (4.8% YTM; 109.3 price) and AZERB 24 (3.2% YTM; 105.2 price) were the worst performers of the month, with the yields jumping by 132bps and 107bps, respectively. From other regional Eurobonds Russia (1.4% YTM; 110.0 price) performed relatively better with the yield widening only by 15bps in September, followed by KAZAKH 24 (1.5% YTM; 109.2 price) and UZBEK 24 (3.1% YTM; 105.4 price) increasing by 21bps and 24bps, respectively. Yields on TURKEY 21, BELARUS 23, GEORGIA 21 and UKRAINE 21 increased by 55bps, 58bps, 66bps and 100bps, respectively. • From regional central banks Uzbekistan and Armenia reduced policy rates by 100bps to 14.00% and 25bps to 4.25%, respectively. While, central bank of Turkey made a surprise hike of 200bps to 10.25% aiming for stopping lira’s freefall. Other regional central banks kept policy rates unchanged in September. • Most of the regional currencies depreciated against dollar in the range of 0.3%-5.1% during September, with BYN of Belarus being exception. BNY appreciated by 1.9%, regaining its lost value during previous month’s political turmoil. • In its first draft of 2021 Budget, Government of Georgia announced a plan to repay US$ 500mn Sovereign Eurobonds in 2021, if there are no complications with the virus and economic parameters are in line with projections (read more in our report). Notably, Georgian Oil and Gas Corporation, a quasi-government entity which was facing US$ 250mn Eurobond maturity in 1Q21, announced about the signing a loan facility from EBRD, which will be used to refinance the Eurobond. • Among Georgian placements, GRAIL 22 (4.7% YTM) turned out to be the best performer of the month, with the yield down by 16bps, while yield on GOGC 21 remained flat. Among Georgian banks BOG 23 (4.3% YTM) performed well, with the yield down by 19bps, while yield on TBC 24 (5.2% YTM) was up by 36bps. The price of CGEOLN 25 and SILKNET 24 have remained mostly flat during September. Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.
