Fixed Income. CIS Sovereign Pulse - May 8, 2018

The EM credit space has come under pressure from growing US inflation expectations, even though the Fed has promised to be tolerant with regard to overshooting its target. Sentiment toward interest rate risk and EM risk has adjusted to reflect the building price pressure in the US.The CIS market has seen a clear divergence along the lines of credit quality over the last week. Single-B names, such as Ukraine, Armenia and Belarus, have underperformed, while peers with stronger credit quality, such as Kazakhstan, Azerbaijan and Russia, have fared better. Tajik paper (B3/B-/-) stood out due to its surprising resilience, while the short-dated Georgia 21 (Ba2/BB-/BB-) fared worst among CIS sovereign papers, although we attribute the performance of both to just a select few investors. There has been much attention on the political events in Armenia, where the parliament elected Nikol Pashinyan as prime minister today. The formation of the new government in Russia has also come to the forefront, though few details have emerged at this point, given that Putin's inauguration was only yesterday. Elsewhere, the National Bank of Kazakhstan provided what appears to be a realistic assessment of the level of non-performing assets in the banking sector and Belarus made an announcement on the expected timing of its planned panda bond placement. We also note that Ukraine's Finance Ministry has indicated that a Eurobond placement is possible even without the long-awaited completion of the review of the stalled IMF program.