The Ministry of Finance attracted UAH16bn yesterday, with almost the entire volume due to "reserve" bonds.
The MoF offered three UAH ordinary (non-military) bills with maturity from one to three years, with the three-year note as "reserve" paper. This "reserve" instrument is one of three securities placed last week that the NBU has allowed banks to use from March 11 to cover part of required reserves. That is why banks directed all their demand to this instrument.
The three-year note was offered with a cap of UAH15bn. It received 42 bids for UAH 15.4 billion. Of this amount, UAH3.7bn was in non-competitive bids (satisfied at the actual weighted average rate), and the rest in competitive bids with rates from 19.25% to 19.75%. Demand with rates below the maximum interest rate was considerable because the MoF set the weighted average rate at 19.65%. As a result, the MoF fully satisfied all bids, non-competitive and competitive, with interest rates lower than 19.75%. Bidders who expected to buy bonds at the maximum rate received only a part of the desired volume within the remaining offer and in proportion to the size of their bids.
The other bills offered yesterday received little demand compared with "reserve" bonds: UAH164m for the one-year and UAH15m for the two-year securities. Seven participants were interested in the two-year bills at the usual rate, while the one-year instruments received a bid for UAH100m with a rate of 25%, which the MoF rejected.
The budget received 99.5% of the funds from yesterday's auction, most likely from banks that plan to use three-year government bonds to cover required reserves. The MoF sold UAH84.7bn of "reserve" bonds YTD, which provided the state budget with UAH89.4bn of proceeds or 76% of all funds raised YTD. Given that only banks buy "reserve" bonds, we can assume they are now the key provider of funds for financing the budget deficit from domestic sources.
Research team: Taras Kotovych.
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