New bills provide large borrowings

The Ministry of Finance successfully placed two new bond issues on 24 January, which brought the budget 85% of all the proceeds from this auction.

The shortest paper, which was the most popular last week, received UAH751m (US$20.5m) in demand. One bid was rejected, and the rest were satisfied proportionally within the UAH500m (US$13.7m) cap. Due to the limited offering, the competition helped reduce the cut-off rate to 13%.

Demand for eight-month bills was mostly non-competitive, so it was satisfied at the lowest competitive rate, 16%. One bid with a rate of 18% was rejected.

The Ministry of Finance, again, did not agree to raise the interest rate on 12-month securities to 25% for the sake of UAH100m (US$2.7m), so it accepted five out of six bids, keeping the interest rate at 18.5%.

The most interesting were the two new issues of bills maturing in two years, in December 2024 and May 2025. These were issues of ordinary (non-military) bonds, which the National Bank of Ukraine can allow to cover mandatory reserves.

The 23-month paper brought in the largest demand — UAH6.2bn (US$169m) — and all bids were satisfied. The cut-off rate was set at 19.6% and the weighted average at 19.59%, 10bp and 9bp higher than last week’s bills maturing in October 2024. But the demand for longer paper was less unanimous. Most of the demand was at the rate of 19.75%, and it was satisfied. But there was also one small bid with a desired interest rate of 24%, which, predictably, did not find understanding on the Ministry of Finance side.

Banks' need for bonds to cover mandatory reserves contributes to increased borrowing. According to the results of the previous auctions, they can purchase about UAH50bn (US$1.4bn) of such bonds. It looks like more than half of these funds have already been withdrawn to the state budget.

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