The Ministry of Finance once again increased interest rates to attract new borrowings. However, this time, it did not help increase budget proceeds, which amounted to just UAH2.5bn (US$89m) versus UAH7.9bn (US$280m) a week before.
Most likely, lower proceeds were the result of the Ministry not offering three or six-month maturities. Longer instruments are less attractive to investors. However, demand was a bit larger than for the same maturities earlier this month.
For one-year paper, demand was a bit larger than last week, and rates in part of the demand were at the same level as last week's cut-off rate. Out of 18 bids for this paper, the Ministry accepted 11 at the lowest rate in demand of 10.5%.
Demand for three-year paper rose almost three times, but, in total, it was slightly below UAH0.5bn (US$18m) with increase in rates in demand. The lowest rates in bids rose 15bp to 11.1% and was set as the cut-off and weighted-average rate yesterday for this paper.
For the second consecutive time, the MoF increased rates for USD-denominated bills, despite the lowest rate coming in at the same level as the cut-off rate set a week ago.
Most likely, bids with the lowest rates were small, which induced the MoF to set the cut-off rate at 3.8% (up 10bp). The weighted-average rate rose by 15bp to 3.77%, indicating that most of accepted demand was concentrated at 3.8%.
Rates continue to increase, but despite the large amount of NBU refinancing loans issued for banks last week, these funds were not used for the purchase of new government bills. The main reason could be lack of the most desirable maturities in the offering, e.g. three-month or six-month papers.
However, next week, we expect the amount of borrowings to rise due to large debt repayments scheduled for the following week, as some investors can reinvest funds in new bills.