On March 19, the MoF decreased interest rates for UAH bonds by 20‒30bp, accepting about half of the received demand.
The largest demand and the most significant decline in interest rates were for 12-month bills. This paper was almost 3x oversubscribed—demand was UAH8.7bn while the cap was UAH3bn (US$77m). All bids were lower than last week: the highest rate was 16.6% (20bp lower), while the lowest was 16.25% (45bp lower). Due to the cap, the MoF set the cut-off rate at 16.5% and the weighted-average rate at 16.46%, both 30bp below last week's rates.
The two-year paper received almost 2x oversubscription. The minimum rate in demand was 17.15 (40bp lower than last week), while the highest rate remained at 17.6%. Probably most of the demand was with a 17.35% rate, which the MoF set as the cut-off and weighted-average rates, both 25bp lower than last week.
Demand for three-year notes more than doubled yesterday, but it is still lower than the cap. Therefore, the MoF had to reject some bids with rates above 18.3% to keep them in line with other instruments and decrease the cut-off and weighted-average rates by 20bp to 18.3%.
There were no visible changes in interest rates for USD-denominated bills. The MoF borrowed US$149.8m, keeping the cut-off rate at 4.66% and increasing the weighted-average rate by 4bp to 4.66%. The MoF rejected just one small bid at a 5% rate.
Demand for UAH bonds rose after the NBU surprised the market with its key policy rate cut last week, increasing expectations of further key rate cuts in 1H24. Also, a large part of the demand could have accumulated from last week's UAH debt redemption. So, large demand and market expectations allowed the MoF to decrease bond rates, although less than NBU key rate cut.
