ICU Bond Market Insight: 8 May 2024

The MoF continued to reduce interest rates for UAH bonds, sold the planned amount, and received UAH9.4bn of budget proceeds. Investors and traders tried to reinvest funds from last week's redemption, allowing the MoF to reduce rates by 6-20bp.

A new 12-month paper received UAH9.4bn of demand in 34 bids with interest rates from 15.25% to 15.39%. Much of the demand was at the lowest rate, so the MoF sold the planned UAH3bn of bills at this rate. The cut-off rate declined by 20bp, and the weighted-average rate slid by 14bp to 15.25%. The total interest rate decline for 12-month bills in two weeks is 75bp.

The two-year paper was about 50% oversubscribed with a tight range of interest rates, 16.2%‒16.3%. Therefore, the MoF accepted all bids, some partially within the cap. The cut-off rate declined by 10bp to 16.3%, and the weighted-average rate slid by 6bp to 16.29%. In two weeks, interest rates for this paper declined by 70‒71bp.

The largest demand, almost UAH10bn, was for the three-year note, which the MoF planned to sell within the UAH3bn cap. Interest rates were from 17% to 17.6%, but the MoF accepted only bids with rates up to 17.5% within the cap, so most were satisfied partially. The cut-off rate declined by 20bp, and the weighted-average rate slid by 10bp to 17.5%. During the two weeks since the NBU decreased its rates, the decline in interest rates for the three-year paper was the greatest at 80bp.

Despite the NBU declaring the plan to decrease its rates further by 50bp this year (most likely in June), market players expect that the NBU rates cut can be bigger and, in two weeks, allow the MoF to decrease interest rates for UAH bonds more than by 2/3 from the recent NBU decision. If such expectations increase by the next NBU monetary policy committee, the bond rate reduction may be even greater than April's reduction in the NBU key policy rate.

The MoF continued to reduce interest rates for UAH bonds, sold the planned amount, and received UAH9.4bn of budget proceeds. Investors and traders tried to reinvest funds from last week's redemption, allowing the MoF to reduce rates by 6-20bp.

A new 12-month paper received UAH9.4bn of demand in 34 bids with interest rates from 15.25% to 15.39%. Much of the demand was at the lowest rate, so the MoF sold the planned UAH3bn of bills at this rate. The cut-off rate declined by 20bp, and the weighted-average rate slid by 14bp to 15.25%. The total interest rate decline for 12-month bills in two weeks is 75bp.

The two-year paper was about 50% oversubscribed with a tight range of interest rates, 16.2%‒16.3%. Therefore, the MoF accepted all bids, some partially within the cap. The cut-off rate declined by 10bp to 16.3%, and the weighted-average rate slid by 6bp to 16.29%. In two weeks, interest rates for this paper declined by 70‒71bp.

The largest demand, almost UAH10bn, was for the three-year note, which the MoF planned to sell within the UAH3bn cap. Interest rates were from 17% to 17.6%, but the MoF accepted only bids with rates up to 17.5% within the cap, so most were satisfied partially. The cut-off rate declined by 20bp, and the weighted-average rate slid by 10bp to 17.5%. During the two weeks since the NBU decreased its rates, the decline in interest rates for the three-year paper was the greatest at 80bp.

Despite the NBU declaring the plan to decrease its rates further by 50bp this year (most likely in June), market players expect that the NBU rates cut can be bigger and, in two weeks, allow the MoF to decrease interest rates for UAH bonds more than by 2/3 from the recent NBU decision. If such expectations increase by the next NBU monetary policy committee, the bond rate reduction may be even greater than April's reduction in the NBU key policy rate.