On March 14, the Ministry of Finance was able to sell only a quarter of the proposed offerings of "reserve" bonds. At the same time, neither ordinary nor military bills received much demand.

Ordinary (non-military) 11-month paper received only UAH107m (US$2.9m) of demand in four bids, including the usual bid for UAH100m (US$2.7m) with a 25% interest rate. Three were accepted and almost the entire volume was in non-competitive bids.

Demand for 1.5-year securities was unanimous in 23 bids, but also small—only UAH66m (US$1.8m). All bids were fully satisfied, and a third of the volume was sold under non-competitive demand.

At the same time, the "reserve" note did not live up to the expectations of the MoF. The Ministry planned to sell UAH10bn (US$273m), expecting another sensational level of demand. But yesterday, banks were in no hurry to buy bonds to cover part of the required reserves. Demand amounted to only UAH2.6bn (US$71.3m) without considerable competition in rates: the minimum rate in the bids was only 5bp below the maximum and did not affect the weighted average interest rate.

So far, the Ministry of Finance has already placed UAH87.3bn (US$2.4bn) of bonds that banks can use to cover reserve requirements. Banks still can purchase more than UAH20bn (US$0.5bn) of bonds before they fill their limit. But they are in no hurry to do this, freezing funds in "reserve" securities for more than two years, since, likely, they reduce the reserves soon.

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 RESEARCH TEAM: Taras Kotovych

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