The MoF increased rates for UAH-denominated bills again, but their decision-making process has become more nuanced.
Almost 80% of total demand in yesterday's auction was from one bank. It was for the four-month bills, and came in with a rate of 7.5%, or just 20bp above the cut-off rate set two weeks ago. The amount, UAH2bn (US$63m), borrowed by the MoF is almost the same. Therefore, it is not surprising that given the large amount, the Ministry of Finance accepted the increase in rate demanded by the borrower.
However, for the other two bills offered, the MoF decided not to increase interest rates.
UAH290m of demand for 12-month bills in nine bids was not enough since it would have meant increasing the rate by at least 45 bp.
The same occurred for the three-year paper, where only four bids out of seven could be accepted at an unchanged rate of10.95%, including non-competitive demand. Another three bids had higher rates. It is unknown which level of rate was next after 10.95%, while the highest rate was 12.5%. The Ministry rejected three bids amounted to about UAH175m (US$6m).
So, the budget received almost UAH2bn (US$63m), most of it from four-month bills. This auction demonstrated that with demand amounting to at least UAH2bn, bidders can count on an increase in rates. However, with demand at UAH200-300m with rate increases in increments of 45bp or less, but without a material increase in the amount of proceeds, the Ministry will wait.
As we expected, the decision to increase interest rates depends on how much demand the MoF receives. They allowed an increase in the rates for three-month bills, but for longer maturities, they will wait for larger demand.