Autumn's debut auction saw an additional decline in interest rates with partially rejected demand for 12-month and three-year bills. In total, the MoF borrowed UAH1.9bn, while demand was UAH2.9bn.
Three-month bills once more received demand below the offered amount. This Tuesday, demand was UAH328.4m (par value) with rates 16.1-16.25%, or 25-40bp below the auction of two weeks ago. All bids were accepted, which provided UAH315.6m of proceeds.
At the same time, longer maturities attracted a wide range of demand, and the Ministry had to decide which bids to accept. Some bids were rejected, resulting in borrowing significantly less than was planned.
For 12-month bills, demand was too great; it exceeded UAH500m of offered bills. But rates were up to 16.3%, higher than last week's cut-off rate. So, the MoF decided not to accept such high rates, and set a new cut-off rate at 15.95% or 5bp lower than the week before. Budget proceeds amounted to UAH363.4m, one-third of which came from non-competitive bids.
Three-year bills provided the greatest demand and proceeds. Demand was UAH1.9bn, close to the offered amount of UAH2bn. Rates mostly were lower than two weeks ago, between 16% and 16.2%. But the Ministry decided to reject 13 out of 34 bids, selling just UAH1.2bn (par value) with proceeds at UAH1.23bn. The new cut-off rate was set at the lowest level in the bids, 16%, down 19bp from the previous auction. For this maturity, 41% of demand was in non-competitive bids, while in accepted demand, non-competitive bids were 65%.
Prior to the NBU's key policy rate review scheduled for today, participants of this auction did not take risk, and submitted non-competitive bids or with rates below the recent cut-off rates. This was the result of expectations that rates will decrease, which will cause a further decline in rates for local-currency bills. As a result, the next auction should see a greater decline in rates. At the same time, the total amount of demand remains quite low. Next week, budget proceeds can rise thanks to offering FX-denominated bills, which were not scheduled earlier. But this type of bill will also see interest rates lower than before.