Another new year started with increased activity in the primary bonds market. So far, each auction held by the Ministry of Finance has been larger than the previous one. This week, borrowings amounted to UAH18bn, and half of the funds came from local-currency bills.
For bills with maturities up to one year, the Ministry kept cut-off rates unchanged. They received 61 bids for these bills, and rejected just two: one for three-month bills at 20.5% in the amount of UAH140m, and one for six-month bills at 19.5% for only UAH30m. In the end, short-term bills provided the budget with UAH9.3bn of proceeds, mostly with the longest maturity November 2019.
The Ministry also rejected demand for five-year notes with rates in the range of 17-18%. Although this issue could provide additional funds of more than UAH300m, it was an insufficient amount for this auction. It is important to note that this maturity received demand at this particular rate. The question is, which level will be acceptable for both sides of the deal.
There were large offerings of FX-denominated bills, with five different maturities. One issue was in euros and four in US dollars, including an issue with maturity in 22 days, which collected the main part of the proceeds. US$285.6m were borrowed with a redemption date of 21 February. With other issues, the MoF refinanced nearly 100% of today’s repayments in FX.
The yield curve at the primary market has steadied, and with the NBU’s key rate unchanged, it should stay at this level. At the same time, longer instruments received demand, but interest rates are still a subject for discussion. Nevertheless, with significant financing, the refinancing of foreign currency payments and the increase in the terms of borrowings in FX remains a key issue for the Ministry of Finance, since the practice of short issues with maturity of less than a month only increases the risk of being able to borrow the necessary amount of funds.