February’s debut auction provided the state budget with a lower amount of funds than the previous two auctions. But, in any case, budget proceeds were sufficient, amounting to UAH6.7bn, most of it in local currency.
Demand for FX-denominated bills was insufficient, just US$11m for both offered maturities. There appear to be two main reasons for low demand: the long maturities, five and 12 months, and lack of debt repayments in FX this week. Most of the available funds were invested last week.
At the same time, demand for local-currency bills, although still quite high, was nearly two times larger than today’s debt repayments. Total bids amounted to UAH6.6bn, and most were at levels acceptable to the MoF. Most bids were fully accepted, while only six bids amounting to UAH0.2bn were rejected.
Traditionally, demand is concentrated at the short-term end of the yield curve, especially as this week the MoF offered two-month bills. But, demand for two-year and three-year bills continues to hold. The amount of borrowing in these maturities rose compared with two weeks ago. Also, demand for 12-month bills was at the same level as last week.
Generally, it looks like most demand was submitted last week, as investors anticipated that the NBU would decrease the key rate on Thursday. That meant a lack of additional free funds. However, total demand remained sufficient and was not just to cover reinvestment of debt repayments. It’s possible that foreign investors new portion of the domestic debt, albeit in lower amounts than they were last year. Nevertheless, the MoF can continue with a large amount of borrowings in the next weeks, as with a steady key policy rate, the yield curve should be unchanged, supporting demand for new bills.