August's final auction resulted in an increase in borrowings and a decline in interest rates. The placement of five-year notes was very important, despite significantly less demand than was a month ago.
The Ministry of Finance took advantage of the interest rate levels received in participants' bids, and decreased rates for all offered instruments. Cut-off rates were decreased by 16-22bp to 16.3% for the six-month and two-year bills, to 16% for the 12-month instrument and to 15.3% for 5-year note. Weighted-average rates also declined, but less significantly, by 4-17bp to the same levels as cut-off rates, except for the two-year bills, where it was set 1bp below the cut-off rate.
The structure of demand in the type of bids was quite unusual. Sixty-percent of bills were sold by non-competitive bids. The share of non-competitive bids in accepted demand for short-term bills was about 30%; for longer bills, it was above 60%. The largest share of non-competitive demand was for the five-year note, at 69% of accepted demand.
There is still demand for local-currency bills, and despite a decline in amount of demand, in large part, bidders are will accept any conditions set by the issuer that are based on other bids. This demand has been mostly for longer maturities, which attracts foreign investors.
A similar structure for bills is likely in coming weeks, especially since it's expected that the NBU will cut the key policy rate. But the amount of borrowings will remain low, since five-year note offering isn't scheduled until the end of September.