The MoF borrowed almost UAH6.8bn (US$173m) yesterday with a decline in interest rates.

The greatest demand was for 12-month bills, which was almost twice oversubscribed. The range of interest rates in bids narrowed to 19bp: the lowest rate was 16.15% (up 3bp), and the highest rate declined by 11bp to 16.34%.

Due to the cap, the MoF accepted bids with rates up to 16.25%, which was set as a cut-off rate or 10bp lower than last week. The weighted-average rate slid by 1bp to 16.23%.

Demand for two-year paper fell to UAH0.3bn (US$8m). Although it was with similar rates as a week ago, the MoF rejected two bids with rates above 17.1%, selling only UAH250m (US$6.6m) of bills, decreasing the cut-off rate by 10bp to 17.1% and weighted average by 11bp to 17.09%.

At the same time, demand for three-year notes almost doubled from last week and rates were unanimous, the same as a week ago, from 18.1% to 18.3%. The MoF decided to accept all bids and did not decrease rates. Most of the demand was at 18.3%, so the cut-off rate remained unchanged at 18.3%, and the weighted-average rate rose 3bp to 18.29%.

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The possibility of a rate cut is probably gradually running out, and in the primary bond market, investors are mainly interested in the shortest of the offered instruments.

So, 12-month bills still have the prospect of a gradual decrease in rates due to high competition. Other bonds are unlikely to have such diverse demand to give the Ministry opportunities to lower rates, especially given the lack of large redemptions in April.

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