Keeping rates on military bonds unchanged results in lower borrowing.
The Ministry of Finance decided not to change the interest rates on military bonds and borrowed only Hr 810m ($27m) for the state budget on Wednesday, June 8.
Demand for Hryvnia-denominated military securities fell almost threefold compared to last week, both in terms of face value and the number of bids.
Most auction participants bought semi-annual bills, which provided the budget with almost Hr 765m ($26m), but this was less than half of what was raised last week.
And the number of bids submitted for this paper declined from 40 to 12. The number of bids at the auction on June 8 fell from 140 last week to 40.
The National Bank’s decision to raise the key policy rate sharply by 1,500bp to 25% came as a surprise to the Ministry of Finance.
The auction held on June 8, which the Ministry of Finance announced at fixed rates unchanged from previous auctions, showed the unwillingness of banks and other investors to accept such conditions.
As the next large bond redemption will be held next week, the Ministry of Finance may try to keep interest rates at the previous level and refinance part of this redemption at a low cost.
In the face of the urgent need for funds for state budget expenditure, we can soon expect the rebooting of the domestic bond market in order to find new equilibrium rates acceptable to both investors and the state budget.
RESEARCH TEAM Taras Kotovych
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