The changed list of instruments that were offered yesterday did not produce expected results. The offering of USD-denominated bills saw insufficient demand, and two-thirds of the proceeds were provided by the 3.5-year local-currency notes.
After consultations with primary dealers, the MoF excluded the 10-month bills, and instead increased the cap for three-month bills. But demand was just UAH372.6m, mostly with rates not attractive for the MoF. Out of seven bids, the MoF accepted five, decreasing the cut-off rate by 15bp to 13.8%, and the weighted-average rate by 89bp to 13.06%, selling UAH52.6m (par value) with budget proceeds of UAH55.4m.
At the same time, the 3.5-year notes, which are just three months shorter than what was sold last week, saw UAH4.1bn of demand, while the offering cap was UAH3bn (par value). This allowed the MoF to decrease interest rates by a few basis points: the cut-off rate by 14bp to 12.5%, and weighted-average rate by 2bp to 12.38%.
The offering of USD-denominated bills did not improve budget financing. Demand was just US$73.1m out of which the MoF accepted US$52.7m with slightly lower interest rates.
It appears that now investors are mostly interested in local-currency paper, while FX-denominated paper received a slight demand, which could weaken. Longer paper is the most attractive for investors, at least three-year maturity, which allows them to stay in a higher level of interest rates a week prior to the NBU key policy rate revision.