Regional Fixed Income Market Watch, July 2022

Regional sovereign Eurobond market: Risk sentiments toward regional Eurobonds improved in July-22. AZERB 24 was the best performer of the month, followed by GEORGIA 26 among regional sovereign Eurobonds, with yields narrowing by 115.6bps and 78.2bps, respectively. ARMENIA 25 was the worst performer of the month, with yield narrowing by 40.9bps.

Georgian corporate Eurobond market: Among the Georgian corporate issuers, BOG 23 was the best performer in July-22, with yield declining by 172.8bps m/m. Other bonds saw slight widening in yields (with exception of TBC 24), while GEOCAP 24 posted the largest increase in yield at 159.3bps m/m.

FX market: During July-22, all regional currencies weakened against US dollar, while Georgian lari (GEL) strengthened 5.7% m/m. Ukrainian hryvnia (UAH) weakened most losing 24.5%, followed by Russian ruble (RUB) weakening by 14.9%. Meanwhile Turkish lira (TRY) lost 7.3% and Kazakh tenge (KZT) weakened by 1.4%.

Georgia money market: In Jul-22, GEL 196mn treasury notes and GEL 50mn treasury bills were sold. The reduction in interest rates continued on all instruments m/m explained by high demand along with the peak of the tightening cycle assumed by the market. Weighted average interest rate on 10-year notes was 9.971%, 5-year notes was 9.832%, on 2-year notes was 10.077%, on 1-year instrument was 10.082%, and stood at 10.523% for 6-month instruments. Notably, non-residents’ treasury holdings reduced by 11.2% y/y to GEL 354.5mn, reflecting increased interest rates in US. As a result, the share of non-residents in total outstanding holdings stood at 5.8% (-1.0ppts m/m) in Jul-22.

The IMF cut global growth forecast to 3.2% for 2022, down from 3.6%. Meanwhile, global inflation has been revised up due to food and energy prices as well as lasting supply-demand imbalances, and inflation is projected to reach 6.6% in advanced economies and 9.5% in emerging market and developing economies this year. To fight inflation the Fed made its second consecutive 75bps interest rate hike in July, bringing the funds rate to 2.25-2.50%. The FOMC cited that future hikes will be discussed on a meeting-by-meeting basis, as inflation remains elevated. The European Central Bank (ECB) raised interest rates by more than expected in July as concerns about runaway inflation outplayed worries about growth, even though the euro zone economy is suffering from the impact of Russia's war in Ukraine. The ECB raised its benchmark rates by 50bps, the first rate increase in 11 years.