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ICU Research: UkrFinForum-2019: Local Fixed-Income Market of Ukraine

October 02, 2019 | Cbonds

The sixth annual Ukrainian Financial Forum organized by ICU was held on 27 September in Kyiv. This year's forum was dedicated to the domestic bond market, which has received significant impetus due to unprecedented demand from foreign investors for the government's UAH-denominated bonds. Perspectives and development of the domestic bond market were discussed on the majority of the Forum's panels.

Trade wars between the US and China were in the spotlight of the Forum's discussion on the global macroeconomy for the second year in a row. Substantial monetary easing in these two countries has set the trend of declining interest rates in the world. This results in escalating hunt for yields in emerging and frontier markets.

Ukraine is one of the main beneficiaries of this trend. The country's robust economic fundamentals, prudent fiscal and monetary policies, high yields and simplified access to the market through a Clearstream link have led to a 15x increase in foreign investors' portfolio of the government's domestic bonds to nearly UAH100bn or $4bn this year. However, Ukraine must also accelerate reforms and finally open the long-awaited land market, conduct privatization and liberalize labor relations, and get rid of its curses: weak legal protection, monopolies and corruption.

The Ministry of Finance of Ukraine declared ambitious plans for developing debt markets and decreasing the debt-to-GDP ratio to 43% in the next three years. New technology in the primary market, tight policy for primary auctions should provide more development opportunities for the secondary market of government paper. On the other hand, high real rates will continue to attract foreign investors, add demand in the secondary market, and increase market liquidity.

Further development of infrastructure will help to significantly increase investments in the domestic bond market. Extending the cooperation with Clearstream will allow DVP settlements for non-residents and launch the corporate local bond market. Ukraine's cooperation with Bloomberg will raise the market functionality to a new higher level with the launch of the Bloomberg Auction Systems platform for the primary market on 1 October and the launch of the EBND platform for the secondary market in the near future. For individuals, one of the most important infrastructure features is the development of the Bank ID system, which will significantly expand the geography of investing as it does not require physical verification of customers. Other key focus areas include introduction of online government bonds and tax amnesty.

The coming adoption of the law on derivatives is expected to revolutionize the financial market soon. Together with the future implementation of ISDA and GMRA standards, this will give the market new functionality, a new level of protection, and new services that will boost inflows from long-term portfolio investors.

Company: ICU

Full company nameICU
Country of riskUkraine
IndustryFinancial institutions

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