Bonds of internal state loan in Ukraine: specifics of pricing in imperfect market

It is proved that under the conditions of national market transformation of the domestic public debt, nature of the financial risks naturally changes, which affects the objectivity of the pricing of bonds of internal state loans in Ukraine. We have analyzed the characteristics of yield curves on the primary stock exchange and bonds of an internal state loan market (BISL) of government bonds denominated in local currency.

After comparing the market components, paper analyzes the impact of macroeconomic factors associated with the rates of return of alternative financial instruments. It is established that as the result of a combination of economic and political factors, the market of government securities (GS) in Ukraine for a long time could not fully function, as evidenced by, in particular, over the limits fluctuations of return rates in all segments of the market and a relatively low degree of correlation with the yield indicators of the national economy and financial market.

This situation of price instability was not associated with the factors of devaluation or other crisis factors that intensified in 2014, but rather was a characteristic of the government bond market during the whole studied interval (2010-2015). It is proved that that in the mid-term perspective, with the restoration of macro-financial stability, the priority tasks of the market development must be reduction of the administrative burden on the government bonds market; decline in the share of the NBU to pre-crisis levels of 15-20%; unification of securities to improve market liquidity for the withdrawal of the securities that did not have sufficient demand among investors; increase of qualitative characteristics of attracted financial resources; attraction of small investors’ savings, implementation of loaning by issuing government bonds under specific investment program, reduction of the loans share to cover the budget deficit. Author accentuated that the success of the further development of the internal market of GS largely depends on the debt policy coordination with the monetary and fiscal ones, decrease of the administrative impact and effective management of the GS portfolio.

Paper determined that the development of the market for government securities requires creation of a system of mid-term financial planning, which will increase the transparency and clarity of the state debt policy for internal and external investors.