Regional Fixed Income Market Watch, June 2021
Portfolio flows to Emerging Markets accelerated in June, reaching US$ 28.1bn, almost 3-times higher compared to previous month, according to Institute of International Finance. Most of the investments went into debt markets (US$ 18.9bn), of which US$ 6.4bn went to China. Equity investments stood at US$ 9.2bn in June, of which China accounted for more than half.
In its June 2021 update, the World Bank improved its forecast of global GDP growth for 2021 and 2022 to 5.6% and 4.3%, respectively, up from 4.1% and 3.8% before. Among the regional countries, the largest revision was made for Georgia increased by 2.0ppts to 6.0% (notably, growth rebound in Georgia is beating market expectations, with real GDP growth at 11.5% in 5M21, based on Geostat’s rapid estimates). In Russia, Kazakhstan and Ukraine, the forecast was increased to 3.2%, 3.2% and 3.8% (up by 0.6-0.8ppts). Armenia’s economy is forecasted to expand by 3.4% in 2021 (+0.3ppts), while Azerbaijan’s GDP forecast was revised to 2.8% (+0.9ppts). Turkey’s economy and Uzbekistan’s GDP forecasts were improved by 0.5ppts to 5.0% and 4.8%, respectively. Notably, among the regional countries, Belarus’s economy is forecasted to continue contraction in 2021, down 2.2%. The contraction is related to the fresh EU restrictions on Belarus.
Interest rate hikes continued in June 2021 in the regional countries. Central Banks of Russia and Armenia raised the key rates by 50bps to 5.5% and 6.5%, respectively. The rate hikes are related to the increased inflationary pressures, with central banks indicating possible future increases in the rates in the coming months. Meanwhile, other regional central banks maintained the refinancing rates unchanged in June.
On 4 June, S&P Global Ratings revised Uzbekistan’s outlook from Negative to Stable and affirmed “BB-“ratings. The revision reflects better than expected GDP growth and fiscal and external outturns in 2020.
Regional Eurobonds traded mixed in June 2021. Yield on ARMENIA 25 narrowed by 30.6bps in June to 3.2%. GEORGIA 26 and TURKEY 26 also performed strongly in June, with yields narrowing by 18.9bps and 17.7bps, respectively. Yield on RUSSIA 23 was down by 11.3bps to 0.84. Meanwhile, yields on Belarus and Ukraine widened in June. BELARUS 27 was the worst performer of the month with the yield increasing by 54bps to 8.1% by end of June, while Ukraine’s Eurobond maturing in 2026 widened by 22bps in the same period.
In June, yields on Georgian corporate Eurobonds narrowed. Non-financial corporates performed strongly, with yields on CGEOLN (GGU) and SILKNET 24 narrowed by 31bps to 5.7% and 6.9%, respectively. GEOCAP 24 also performed well, with the yield down by 15.4bps in June. Georgian banks also posted strong performance in June 2021. Yield on BoG 23 was down by 25.6bps to 2.7% while TBC 24 narrowed by 7bps. Notably, on 2 July, Bank of Georgia announced Eurobond repurchase. BoG has repurchased an aggregate principal amount of US$ 8.3mn of the 2023 Eurobonds. Following the repurchase, the Group holds 15.0% (US$ 52.5 million) of the 2023 Notes. The repurchased 2023 Notes will be held by the Group, and there is no current intention to cancel them.
Yield on newly issued Georgian Railway’s Eurobond narrowed in the last two weeks of June. The Eurobond, which was priced at 4.0% at issuance was trading at 3.8% by 30 June.
Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.