Rates are cooling-off December 2012 Yerulan Mustafin [email protected] 7(727)2446986 January 22, 2013 In December, the yields on Kazakh government bonds declined, mostly at the long end of the curve, by 59bp. The decline is associated with the growth of demand from banks and their clients as well as with reduced supply by the Ministry of Finance. Ministry of Finance holds back the rates In December, the Ministry of Finance conducted thirteen auctions offering twelve issues for total of T82.6bn (-49.6% MoM). Two auctions were declared as failed. In comparison, in November, seven auctions were failed (on fixed coupon bonds) “ due to the unsatisfactory prices of the submitted orders". Reluctance of Ministry of Finance to borrow at prevailing rates resulted in the rates decrease to October level. NBK placed 3 and 6 months notes for T30.2bn. Among the placed securities by the Ministry of Finance, T21.5bn accounted for inflation – linked securities MEUJKAM (against T100bn in November). The demand for the medium- and long-term securities was mainly from banks and their clients in the primary market, totaling to 87.3% of the supply (Figure 1). The demand growth was mainly driven by the yield growth at the end of the year, during the traditional rebalancing of investment Kazakhstan yield curve Figure 1. Ratio of bids and offers in primary auctions of medium- and long-term government securities with fixed coupon , % Figure 2. Government bonds placements (nominal) 0 20 40 60 80 100 120 140 160 180 Brokers Broker clients Bank clients Banks PF 0 100 200 300 400 500 600 KZTbn MUJ MUM MOM MKM NTK Halyk Finance estimates Halyk Finance estimates
2 Kazakh yield curve – December 2012 portfolios, as well as by the increase in the share of short- and medium-term securities in government placements. As regards the banks' clients (investors, consisting mainly of mid-cap companies), their limits on bank deposits, regulated by internal policies, necessitate them to direct excess liquidity into the short-and medium-term government securities. Demand from pension funds for securities with fixed coupon remains low, while they continued to buy inflation-indexed securities. In the secondary market the trading volume of 42 issues were T10 bn. The demand for inflation – linked securities increased, with T3.1bn of traded volume (-378% MoM). Money market rates By the end of December, the repo rate declined from 6.75% to 3%, reflecting a recovery in liquidity market following the "Tax Week" in November. On the other hand, the conditions of funding in the currency forward market continued to worsen. Short-term tenge forward rates reached its three- year highs, increasing the negative slope of the NDF curve, which in our view, reflects the expectations of high volatility of the tenge rates in the coming months (Figure 4). In December, tenge rate fluctuated in the range of 150.15-150.60 KZT/USD. According to our estimate, NBK bought about $780mn to "reduce rate volatility" during the month.
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- Fall '12
- Economics, Kazakhstan, Halyk Finance