At yesterday's auction, the Ministry of Finance lowered rates on UAH bonds again. The MoF has extended the total interest rate reduction more than 150bp during the two months after the start of the spring cycle of monetary policy easing.

Demand for one-year bills was the lowest yesterday, only UAH1.5bn, or half of the cap set by the MoF. Two-thirds of demand was under non-competitive bids (satisfied at the weighted average rate), and in competitive bids, rates ranged from 15.0‒15.05%, below the rate of the last auction. Therefore, as expected, all bids were satisfied fully, and rates decreased to 15.05%: the cut-off rate by 10bp and the weighted average rate by 7bp.

Demand for two-year paper exceeded supply by more than three times. Rates in competitive bids ranged between 15.95% and 16.1%, but approximately UAH1.5bn of the demand was in non-competitive bids. The Ministry decided to satisfy this non-competitive demand fully, so, about UAH1.5bn of bonds remained to satisfy competitive demand.


That is probably why the cut-off rate decreased by 12bp to 16.08%, and the weighted average decreased by 7bp to 16.07%.Again, the greatest demand was for three-year bonds—more than UAH14bn—while the cap was set at UAH3bn, as usual. The MoF refused to remove or change the cap.

Therefore, 30%, or UAH900m, of bonds went to auction participants with non-competitive bids, and the rest of the offer was exhausted when bids with rates of 16.93% were reached. Therefore, the cut-off and the weighted-average rates decreased by 27bp to 16.93%.

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Investors continued to compete for longer securities in anticipation of further rate cuts by the National Bank. That is why the reduction of bond rates has already exceeded the reduction of NBU rates and, given such competition, may decrease even more in the coming weeks.

The Ministry of Finance set relatively small caps, which allowed it to reject most of the demand and sharply reduce rates, especially when investors want to reinvest large debt repayments.


Read the full report here.

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