Last week, the MoF collected UAH6.6bn from domestic T-bills. Banks' portfolios rose due to the placement of FX-denominated bills, but other bondholders decreased their portfolios, as there was a UAH4.2bn redemption. There will not be a primary auction this week, so we expect a decline in the portfolios of foreign investors.
The MoF resolved the low funding problem last week by offering FX-denominated bills for the second time this year. Last week, the Ministry decided to cancel the offering for 1.5-year and three-year paper. All demand was concentrated in six-month bills with slight changes in rates. The cut-off rate remained steady at 10%, while the weighted-average rate rose 8bp to 9.9%. However, for bills denominated in euros, the movements were the opposite. The cut-off rate declined by 5bp to 2.25%, while the weighted-average rate remained steady at 2.22%.
As FX-denominated bills usually are purchased by local banks, after last week's auction, only their portfolios rose. They now have UAH329.6bn in bills or 40.4% of all domestic bills. Nevertheless, at the same time, foreigners decreased their portfolios after redemptions and selling in the secondary market. Our assumption is that at least UAH0.5bn of redemption was paid to foreign investors. Last week, their portfolios declined by UAH1.8bn to UAH125.3bn, and their overall share slid to 15.4%, as some local-currency bills were replaced in portfolio with new EUR-denominated paper.
ICU view: Due tao high volatility in global capital markets and falling demand for risky assets of emerging markets, foreigners slightly decreased their portfolios of local-currency bills. These bills were purchased by local investors, which made new primary auctions unnecessary, especially prior to the revision of NBU's key policy rate. Therefore, the Ministry decided to cancel this week's auction.
