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A new world crisis in 2018, will begin with a “bubble” in the bond market

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Our country will have to postpone Eurobond issues and other places to look for the dollar to repay foreign debt

The failure of the us and Asian markets earlier in the week alerted investors. They will be much more cautious to invest in new shares and debt securities. Around the world will be reduced appetite for risk and reduced investment in developing countries. It is unprofitable and even dangerous for Ukraine, which only just began to enjoy demand from investors speculators interested in our bonds.

“Investors will reduce the “risk appetite”, which would entail a drop in demand for risky securities, which include Ukraine’s Eurobonds and domestic issuers. As a result, there are problems with the placement of new issues and/or restructuring of the previous” — predicted Director, Department of market research of the rating Agency IBI-Rating Victor szulik.

In recent weeks, the foreigners sympathetic to our country. But only at a higher rate 16-16,5% per annum in local currency: actively buying up the winter issues of bonds domestic Treasury bonds of the Ministry of Finance. The offering on January 30, occurred by 7.5 billion UAH. a February 6 5.2 billion. Their actions strengthen our national currency the hryvnia by almost half.

“Cooperation with the International monetary Fund braked and foreign currency funds into the country to attract something you need. High discount rate of the national Bank attracted investors. They are happy to sell the falling dollar to go in strengthening the hryvnia, and while still earning a very high yield in government bonds. This is a very good way of attracting financing to the country without an exit on the market of Eurobonds or without the involvement of the IMF”, — he explained the approach of officials of the trader group ICU Vitaliy Sivach.

Someone expensive dollar

The decline in risk appetite proves expectations for change in monetary policy in the United States. The protégée of the previous American President Janet Yellen, who headed the Federal reserve for the last four years, last week conducted its last meeting of the fed, and passed the case to his successor — Jerome Powell. And it is from him that the market is now waiting for new solutions. The main thing — the increase in the key rates of around 0.25%.

This will instantly increase the value of the dollar on world markets. Happens exactly the same thing in Ukraine after raising the discount rate will increase the yield of government debt securities. The authorities will raise interest rates on Treasury — us Treasury bills, and investors will become more active to buy them.

In such circumstances, promised by Finance Minister Alexander Danyluk $2 billion Ukrainian Eurobond placement will be called into question. It can be prohibitively expensive. And not the fact that will draw the attention of investors who will have less risk in developing countries. So the authorities will have to work hard to find large monetary amounts for payments on the public debt: the acting Chairman of the national Bank Yakov Smoliy recently announced that from 2018 to 2020 our country will have to pay about $16 billion this year alone, $7.4 billion (the amount of foreign exchange reserves of the national Bank at the beginning of February was $18.4 billion).

“Most likely, the dollar will become more expensive. This could reduce risk appetite, and this may affect the ability of Ukraine to attract market funding from abroad,” confirmed the Director of analytical Department of investment company Concorde Capital Oleksandr Parashchiy.

However, this may be for the best, the expert admits. Maybe this turn will encourage authorities to real reforms under the pressure of our main creditor.

“The cooperation with the IMF and economic reform will become more urgent. And then the euphoria of cheap loans in the markets rather stops the reform, undermines the Foundation for medium-term growth and increase our medium-term risks,” says para.

By the way, the appreciation of the American currency on the world markets only at first glance it seems very advantageous to Ukrainian farmers, and metallurgists — they have to earn more on their exports. Economists argue that the overall effect on the economy of the country will be negative, because we have almost no pure exporters. Big business is forced to buy energy and raw materials in foreign markets, and lost heavily on the cost of imports.

“Expensive dollar will have a negative impact on the prices of raw materials on world markets, and hence on the currency revenues of exporters, which will affect the trade balance and, ultimately, on the hryvnia,” — says Victor szulik.

Correction or crisis?

How drastically will go up the us currency and as will be redistributed because of this, the global cash flows — the main issue at the moment. After sales on Monday, many investors are at a crossroads. Because to fully understand the nature and scope of large sales of shares on the markets of Asia and in the United States.

Us stock indexes S&P 500 and Dow Jones at the end of trading on 6 February, has fallen more than 4%, the biggest decline in one trading session for the first time in six years, offset all growth beginning in 2018. And there still reigns uncertainty: by this morning, the Dow Jones has decreased on 0,08% (24.893,35 points) and the S&P 500 by 0.50%.

Analysts insist that this is not the harbinger of a new crisis but a correction. However, investors are trying to insure and with all the more wariness react to these excuses.

“Markets are usually in three stages: oversold, balance and buy again. Just third stage at the end of December 2017-January 2018 we saw on the American exchanges, where the growth without correction was more than 400 days. In this connection, a sharp decline in overseas indexes is quite natural. It is also worth noting that the reduction from 7% to 15% is considered quite normal, so-called “bear market” comes after the fall of the index by more than 20%. So, talk about the crisis yet are premature,” he assured analyst CC “Finam” Sergey Drozdov.

While the actual investor behaviour shows that they feel it is a crisis.

“More and more investors are expected to continue the rapid growth of the economy, and look to the future with caution or even apprehension. The mood of investors will depend on the state of the economy. The more active they will curtail their investment, the faster will slow down the growth of the economy”, — said Vitaliy Sivach.

And the reason for the collapse of certain investment and regroup there. And not only in the US, where the effect of the expected rate hike in us waiting only to spring, but also in China, where that’s going to change the basic credit rules. And in Europe are working on tougher tax rules for business. First and foremost, large and foreign trade contracts. Authorities are sorely lacking in their state budgets, but because they will compete not only with fashion in the offshore, and other know-how of large corporations, allowing them to save on taxes and fees.

“This may lead to the blowing of bubbles on the financial markets in individual countries, with unpredictable consequences for their economies,” said Victor szulik.

The scale of these bubbles will depend on the magnitude of the adjustments, or crises, depending on further developments.

“Many have already openly say that the financial markets inflated bubble in the stock market and the bond market. But when financial bubbles burst, the crisis begins. Therefore I do not exclude that in the near future can repeat what we saw in 2008. On the other hand, the global economy over the last 10 years has become much stronger and more productive, and financial institutions are hardened to the previous crisis. So if the world expects a recession, it can be much easier and shorter than it was last time”, said Vitaliy Sivach.

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