“Report”: Interest in US bonds is increasing - Analysis

Baku. 13 September. REPORT.AZ/ Recent global political and economic changes manifest themselves in prices of Eurobonds and annual YTM.

According to observations of analytical group of Report, since the US economic indicators are positive, the Federal Reserve System (Fed) continues to increase the discount rate,  investorsə interest is directed from the developing countries to the United States. Investments in US securities market are increasing. Consequently, the annual interest rate of the 10-year US bonds is around 2.98%.

Instead, the annual YTM on bonds of the developing countries is high. This is caused by the low interest in those securities. For instance, the mentioned indicator is 19.25% for Turkey, 8.21% for Brazil, 7.66% for Russia, 10.07% for Mexico, 8.38% for South Africa, 3.22% for Azerbaijan, 2.43% for Kazakhstan. The low price of bonds of the abovementioned non-CIS counties is also related to political and economic problems they face. Usually, in case of risks related to any country, investors demand higher interest on their securities and consequently, the bond price falls.

Therefore, the positions of Turkey and Russia in foreign financial markets are more interesting for Azerbaijan. Both countries recently suffer from financial problems as a result of threat of US sanctions.

Turkey’s situation is more dangerous due to lasting inflation and deficit in foreign trade balance. As the risk on Turkey increased due to the fact that the external debt of the private sector reached the 40% of GDP and TRY sharply depreciated, the interest in Turkey’s bonds declined. The most  declining is the price of long-term bonds. For instance, the bonds with the date of payment in 2021, depreciated by 11.5%. This means that the investors are not satisfied with the long-term perspective of the country. An increase of discount rate by the Central Bank of Turkey will also have a serious effect on the interests on securities.

As for Russia, though this country got a positive balance in foreign trade due to high oil prices, it is facing the threat of US sanctions. If Russia seen by investors as a 'last station' among the developing countries faces sanctions, it will affect not only Russia itself but also other developing countries. Currently, the YTM on Russia’s Eurobonds, which are valid till 2023, is 4.42%, down 4% from Turkey’s Eurobonds with the same payment date, at the same level of Azerbaijan’s Eurobonds.

In comparison to Turkey and Russia, there is no serious change in annual interest rates of Azerbaijan’s Eurobonds yet. Our securities are still preserving the 4.75%-coupon rate. Against the backdrop of all global and regional risks, no serious changes are observed in foreign investors’ interest in the state bonds of Azerbaijan. As the main fundamental indicators of the country are improving due to an increase in oil price, no serious threat is expected for our Eurobonds.