There was less demand for local-currency bills this week and, as a result, proceeds for the budget fell more than ten times. Despite this, the Ministry was able to decrease rates for some issues.
In total, the auction received UAH4bn of demand, but a large portion was rejected for different reasons, and borrowings amounted to UAH1bn. There were important limits for some maturities, and high rates for the nine-month bills.Due to the offering being limited to UAH500m (US$19m), the Ministry rejected most of the demand for the three-month bills, and sold only the offered amount. This decision allowed a decrease in the cut-off rate by 25bp and weighted-average by 31bp to 10.25% and 10.19%, respectively.
However, for six-month bills, demand was two times lower than the offering. Interest rates were mostly very low, between 9.99% and 11%, and the Ministry decided to reject just one bid at 11%, which amounted to UAH20m (US$0.7m). With this decision, the cut-off rate slid by 5bp to 10.95% while the weighted-average rate declined 45bp to 10.33%.
The nine-month and 12-month bills were offered without limits, but demand was low, less than UAH2.5bn (US$93m) for both maturities. The Ministry did not sell the nine-month bill, as demand was at the simple rate of 11.24%, 24bp above last week's cut-off rate.
Demand for 12-month bills varied, allowing the Ministry keep the cut-off rate unchanged and borrow UAH314m (US$12m), although with an increase in the weighted-average rate by 2bp to 10.97%.
The mood of the market for this auction was not optimistic. It is the end of month and banking-sector liquidity is falling, two factors that are not supportive of banks demand for new bills, while debt interest repayments this week will be just UAH1.6bn. Additionally, banks could already have filled their limits for government debt, while foreigners have become a bit more active in selling local-currency debt, probably at better conditions than the Ministry offered. We expect the primary market to be more active in June, when the Ministry will have to repay a large portion of domestic debt.
