June's debut auction was met with an increase in demand, which resulted in an almost three-fold increase in budget proceeds. At the same time, the Ministry was able to decrease interest rates for all offerings.
Typically, the three-month and six-month bills have set limits, which this week resulted in a material decline in interest rates. There was not much demand for the three-month bills, just UAH830m vs the offered amount of UAH500m. The six-month bills saw three times larger demand, UAH1.5bn vs the offered amount of UAH500m.
The large demand allowed the Ministry to sell the planned amount of these bills, receiving UAH525m and UAH477m, respectively, accepting only part of the cheapest demand. Most likely, some bids were partially accepted. As a result, cut-off rates were set at 9.9% and 10.27%, while weighted-average rates were 9.84% and 10.11%, respectively, for the three-month and six-month bills. These rates are 35bp lower than a week before for the three-month bills. For the six-month paper, the cut-off rate declined 68bp and the weighted-average rate by 22bp. This large difference was the result of a wide range of rates in accepted bills a week ago.
Rates for longer bills also declined, but it was less material. The weighted-average rate for nine-month and 12-month bills slid by 11bp to 10.89% and 10.86%, respectively. The cut-off rate for these bills was set at the same level, 10.89%, which is 11bp and 8bp below previous successful auctions, respectively.
However, Ukrainian banks and non-bank investors continue to purchase new bills with a slight increase in demand. Most likely, this is a result of large debt repayments scheduled for next week, in addition to the scheduled revision of the NBU key policy rate next Thursday. This could incent investors to purchase bills in advance, as next week the Ministry can be more aggressive in rejecting bids with higher interest rates waiting for a further decline in interest rates after the expected NBU key rate cut.
