ICU Weekly Insight: NBU Significantly Eases FX Restrictions

Bonds: UAH bond rates fall sharply

The NBU's decision to reduce its interest rates by 1pp resulted in an immediate and sharp decline in interest rates on UAH bonds.

Last week's primary auction followed the NBU’s decision to cut the key policy rate and interest rates for CDs by 1pp. In addition, it was the last time the MoF offered bonds due in April 2025 and July 2027, as the total issuance limit of UAH20bn was about to be reached. Therefore, all offered bonds were oversubscribed, and demand exceeded the cap by two to three times. Due to high competition, interest rates declined by 55‒70bp.

See details in the auction review.

The secondary bond market also reacted to the NBU's decision and MoF's cutting rates in the primary bond market. YTMs declined by 50‒70bp. The most traded (about 30% of total trades in UAH bonds) was a 12-month paper, which the MoF sold in recent weeks. Total turnover rose by 25% to UAH9.2bn.

ICU view: The bond market immediately reacted to the NBU's decision to cut its rates. Although the MoF will offer new 12-month and three-year instruments tomorrow, due in June 2025 and August 2027, we expect a significant demand as investors will be in a hurry to reinvest last week's redemption.

However, we do not expect substantial changes in interest rates in the primary market. Most likely, the MoF will reduce interest rates gradually in the following weeks, and the next significant change in interest rates is only likely following NBU’s rate decision in mid-June.

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