With this report we present to investors our top idea in the field of Ukrainian fixed income, VAT bonds, and explain the reasons for our recommendation to BUY these instruments. The Ukrainian government already has published an official resolution that establishes the main features of the VAT-bonds issue and regulates all procedures and terms related to these bonds’ issuance and maturity. Taking into account the planned issue’s huge volume, the limited demand within Ukraine and Ukrainian exporters’ high liquidity needs, we expect yields to exceed 20%, which is 2.5 times higher than Ukrainian Eurobonds’ yield.

Last week, quotes for CDS for Ukrainian government debt experienced a decline of 75.1 basis points (by 11.1%) – from 674.9 b.p. to 599.8 b.p. At the same time, the Ukrainian CDS quotes were very volatile and reached a peak of 689.2 b.p. during the last week. Ukrainian CDS were influenced by external factors such as the global rebound after correction in world markets.

Last week, quotes for CDS for Ukrainian governmental debt increased by 102.1 basis points (or by 17.8%), from 572.8 b.p. to 674.9 b.p. This increase arose from increasing pessimism about the solution to European governments’ debt problems; thus CDS for Russian and Argentinean governmental debt also rose , by 37.0% and 40.9%, respectively.

Last week, quotes for CDS in the Ukraine experienced a drop of 62.4 basis points – from 635.2 b.p. to 572.8 b.p. Such a drop is connected with news about increasing optimism about the solution to the Greek problems; thus CDS for Russian, Kazakhstani and Argentinean government debt declined as well, by 59.8 b.p., 60.1 b.p. and 147.3 b.p. respectively.

After a recent 3-month rally on both Ukrainian equity and debt markets (the UX Index increased by 62% in the past 3 months, while yield on the Ukraine-11 Eurobond issue YTM dropped from 11.1% to 5.3%) we still see the opportunities for both aggressive and conservatively-oriented investors. BUYing domestic government bonds (OVGZs) is our top idea in the field of fixed income and with this flash note we present the rationale.

“Ukraine would like to thank investors for [their] high level of interest in its roadshow and productive investor meetings. The Ministry of Finance has decided not to proceed with a new transaction at this time, given other immediate sources of financing and its liquidity position. Ukraine will consider international capital market financing on ongoing basis based on its needs and market environment,” reads a Ukrainian Ministry of Finance press release.

The Ukrainian Ministry of Finance started Eurobonds road-show, reported minister of finance Mr. Yaroshenko. According to Minister, Ukraine intends to place Eurobonds for USD 2 bln.

Ukraine may start a Eurobonds road show in July, reported Interfax, with reference to a source in the banking community.

The Fitch international ratings agency improved its outlook on the credit ratings of the City of Kharkiv from ‘negative’ to ‘stable’. Fitch maintained its long-term rating for Kharkiv (both in the national and foreign currency) at the ‘B-’ level.

The Fitch international rating agency increased the outlook rating for Ukraine from ‘negative’ to ‘stable’. At the same time, Fitch confirmed Ukraine’s long-term rating B-.