The Ministry of Finance continues to borrow large amounts of funds, gradually refinancing debt repayments. As the result of yesterday's primary auction, the budget will receive more than UAH10bn (US$366m), which is in line with previous weeks when the Ministry borrowed UAH10-11bn.
This week, as expected, most funds came from FX-denominated bills. Repayment of US$333m was partially refinanced, but not all investors participated in this auction. Likely, they will try to buy new bills later this month.
Yesterday's offering was a departure from recent auctions, as the Ministry has not offered 1.5-year FX-denominated bills for almost a year. Earlier this year, all USD-denominated bills had maturities up to 14 months. However, with the increase in maturity, rates remained steady. The increase in maturity did not have much of an impact on interest rates, which were up just 10bp to 3.6% from the auction two weeks ago when 10-month bills were sold.
For UAH-denominated bills, interest rates remained unchanged, although this required rejecting part of demand. For four-month bills, the Ministry rejected UAH1bn of demand at 7.82%, which was 82% above the auction two weeks ago. Most demand was rejected for 2.5-year paper to avoid increasing rates up to 12.5%. The Ministry rejected UAH1bn out of UAH6bn of demand for four-month bills. For 2.5-year paper, they accepted just UAH2.7m of demand out of UAH109m of received bids.
The Ministry has been able to refinance debt repayments despite limited demand, but there is an increasing burden of debt due in December this year. Likely, they will wait for the new wave of foreign demand as the hryvnia is expect to weaken later this year. For now, however, all proceeds must be used for replenishing treasury accounts after large debt repayments.