ICU Bond Market Insight

The auction on Oct. 31 received record demand since February for UAH bonds due to the offering of seven-month bills, the first time the MoF offered this tenor after 28 February.

The new seven-month military paper was more than three times oversubscribed receiving more than UAH10bn (US$276m) of demand within the cap the MoF set of UAH3bn (US$82m). The rates in bids were very tight, ranging from 17% to 17.1%. The Ministry decided to satisfy all bids, but most only partially. The offered amount was placed, including UAH900m (US$25m) via non-competitive bids (satisfied at the weighted average rate 17.08%). Therefore, only bids with interest rates below the cut-off rate of 17.1% were satisfied fully, and the MoF accepted the rest of the bids in proportion to the size of the bid.

Military bonds maturing in July 2025 saw very little oversubscription, but with rates mostly from 18% to 18.05%, down from last week. The MoF sold the offered UAH4bn (US$110m) of bonds, rejecting the two most expensive bids, probably with some bids satisfied partially.

Interest rates for "reserve" notes also decreased. The Ministry of Finance offered this issue for the last time because, according to the results of the auction, the volume of the issue is almost UAH20bn (US$550m), the usual volume for such bonds. So, banks rushed to buy more bonds to cover some of their reserve requirements from November 11. Accordingly, competition intensified, and bids came in with rates of 18.75‒19% for UAH9.1bn (US$251m), almost double the offer. Therefore, the Ministry of Finance rejected nine bids with rates higher than 18.89% and placed the planned UAH5bn (US$137m) of bonds.

USD-denominated bills were almost three times oversubscribed. Of the 66 bids, the MoF rejected 12, selling US$100m of bills with rates from 4.5% to 4.74%, and the weighted average rate was set at 4.71%.

In total, the Ministry of Finance raised UAH15.5bn (US$426m), but could have attracted even more funds. The offer of new seven-month paper filled part of the demand for short-term instruments that are usually unavailable in the secondary market.

Research team: Taras Kotovych

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