Yield curve of UAH-denominated domestic government bonds placed during past two auctions

The Ministry of Finance attracted almost UAH7.8bn (US$212m) in yesterday’s auction, mainly in local currency, but more than a third in hard currency, even with reduced interest rates.

The Ministry of Finance replaced the 12-month bills with 15-month paper yesterday, but conditions remained unchanged. Demand amounted to UAH1.3bn (US$36m), where UAH450.5m (US$12m) was at 18.3%, UAH272m (US$8m) was in non-competitive bids, and UAH584m (US$16m) had rates up to 19.3%. This could be why the MoF accepted competitive bids at 18.3% and non-competitive demand at the same weighted-average rate.

Placement conditions for 1.5-year military bills and three-year reserve notes did not change. The MoF sold the 1.5-year paper at 19.3%, and "reserve" securities at 19.75%.

This week, the MoF continued to reduce rates on USD-denominated bills. Last week, the Ministry of Finance sold eight-month USD-denominated bills at 4.8%. Yesterday, the demand for new 12-month bills in US dollars saw interest rates ranging from 4.5% to 4.85%. The maximum rate was similar to the placement of 11-month paper at the beginning of May. However, yesterday, the MoF decided that the rate of 4.85% was too high and rejected nine bids for US$10.5m. The maximum accepted rate was set 5bp lower at 4.8%, and the weighted-average rate decreased by 11bp compared with May to 4.74%.

The Ministry of Finance continued to raise funds in local and hard currencies, partially from last week's debt redemptions. Considering July has smaller repayments in local and hard currencies than June, the Ministry has more opportunities to manoeuvre and choose more attractive rates for new placements.

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Research team: Taras Kotovych.

See the full report here.

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