Interest is in short instruments

The Ministry of Finance continues to attract small amounts of funds, mainly for short-term tenors. Despite higher rates, longer maturities are in very low demand.

The majority of the funds were raised on Sep. 20 for four months using USD-denominated bills. Ten bidders purchased this instrument for US$12.4m (UAH453m at the official exchange rate), for 63% of the funds raised yesterday.

Another 35% of yesterday’s proceeds were raised through six-month UAH bills. They were purchased by 16 bidders for UAH254m (US$6.9m), and mostly with non-competitive bids. So, almost 99% of the funds that were borrowed yesterday will come due in February and April next year.

There was almost no interest in longer bills with maturities a year and 1.5 years out. There were seven and six bids for them, respectively. Together they brought only UAH10.7m (US$0.3m) to the budget: UAH4.8m (US$130,000) for 12-month and UAH5.9m (US$162,000) for 1.5-year bills.


At the same time, interest rates for these bills remained unchanged again. For UAH securities, the Ministry kept interest rates at 12-16% and for USD-denominated bills at 4%.

Therefore, the Ministry of Finance does not see the prospects of attracting funds on the domestic market, giving the prerogative of financing the budget deficit to loans from international partners and grant aid. This can explain the effort to keep the rates on military bills almost half that of the NBU key policy rate and inflation for over four months.


RESEARCH TEAM: Taras Kotovych

See the complete report here.


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