At yesterday's primary auction, the largest part of funds borrowed was in FX-denominated bills, which doesn't happen often. The preference of FX-denominated bills likely was caused by the refinancing of repayments, and low demand from foreign investors.
Monday was the first day that investors in Ukrainian securities could settle their trades via Clearstream, a major convenience for foreign investors. The announcement came just last week, so some investors may delay investments in local-currency debt until they can use this infrastructure for Ukrainian market. At the same time, demand from locals is low also.
Taking into the account maturity dates of offered bills and amounts raised in UAH-denominated paper, we assume that part of demand was from foreigners. However, they had low impact on the total amount of yesterdays' borrowings in local currency, as the MoF received just UAH1.2bn, and increased the cut-off rate for three-month bills by 11bp.
Most of the debt repayments due in FX were refinanced. Proceeds in FX amounted to US$90m, while the MoF repaid US$107m. These borrowings were supported by offering of puttable bills. A similar instrument was redeemed last week, and those investors could reinvest received funds in new puttable bills.
So, foreign-investors' activity remains subdued, as does the amount raised by the MoF in recent auctions. Next week will be important. Debt repayments in local currency are low, so if the auction sees large demand, it will be an indicator that investors expect the NBU to reduce the key policy rate and keep the exchange rate steady. At the same time, over the next two weeks, the MoF has to pay about US$800m in FX so it will be looking to issue bills in FX. Likely most of these proceeds will be reinvested in new FX-denominated bills.