Yesterday's demand at the primary auction was lower than the offered amount, which did not prevent the rejection of some bids and a decrease in cut-off rates. Offered was UAH500m (US$20m) of six-month and 11-month bills each, and UAH2bn (US$79m) of two-year bills; demand was UAH2.3bn (US$90m). As a result, budget proceeds amounted to UAH1.96bn (US$78m), the main part coming from two-year paper.
Six-month bills received UAH391m of demand, but most bids were for small amounts. One bid with the highest rate of 16.7% was rejected. The MoF rejected 77.5% of demand for this tenor. The cut off rate slid a mere 2bp to 16.5%, while the weighted-average rate rose 6bp to 16.47%.
Most of the demand for 11-month bills was accepted, where most of the demand was small bids. Out of 18 bids, the MoF rejected two, which amounted to UAH35m (US$1.4m) or only 7% of demand. The cut-off rate declined 10bp to 16.18%. The weighted-average rate declined by 6bp to 16.16%. Proceeds from these bills amounted to UAH462.2m (US$18.3m).
For the two-year bills, demand was lower than the offered amount. However, the Ministry decided not to accept the entire demand, rejecting one bid for UAH50m (US$2m), which was 4.5% of the demand. They set the cut-off rate at 16.52%, down 23bp, and the weighted-average rate at 16.43%, which was 1bp higher than two weeks ago.
Currently, the situation at primary market does not appear to be attractive for foreign investors in UAH-denominated bills due to a very strong hryvnia. For domestic investors, the current level of interest rates is very low, so they, too, are less active. Therefore, we do not expect high activity at the primary auction next week when the MoF will offer limited amounts of instruments with maturities up to three years. Foreigners may increase activity at the end of August when a five-year note offering is planned, but should the hryvnia weaken and the Ministry will not cap this offering.
