As the result of yesterday's auction, the Ministry of finance borrowed UAH13.5bn, including US$199m in FX. All bills were sold at the usual levels of interest rates seen recently.
For the fourth consecutive week, the Ministry offered bills with the shortest maturity which exceed 100 days, and yesterday sold more than UAH4bn of 4-month bills, while 6-month and 12-month bills provided sufficiently lower amounts, UAH0.1bn and UAH0.6bn, respectively. Higher interest rates for shorter instruments supported demand.
At the same time, there was a high level of demand for medium-term bills, which were offered with two and three-year maturities. As usual in this category, demand was concentrated in the two-year bills, which provided UAH3bn of proceeds.
In spite of large proceeds in local currency, the most interesting offering was for FX-denominated bills. Large repayments in FX are scheduled this week, while in recent past weeks, there was a low level of refinancing of FX-denominated repayments. This week, the Ministry in addition to offering the usual bills; offered issue of bills with a put option. They were sold at the pre-announced fixed rate 3.85% denominated in US$. During the month of April, redemption will occur for some issues sold in November 2017, at a 5.4% coupon rate, and this week, repayment of US$73m on these borrowings is scheduled. We think that this repayment was reinvested in the new bills with the put option.
Thanks to these reinvestments and demand for two other FX-denominated instruments, the MoF borrowed US$199m and refinanced nearly 60% of debt repayments in FX.
Generally, borrowings for budget financing are high and concentrated in local currency, which is positive for debt policy. But with low refinancing of repayments in FX, the FX balance in the government's accounts has declined, making new external borrowing and greater domestic borrowing in FX a necessity.