Yesterday, for the first time since February 2020, the Ministry of Finance sold four-year paper collecting a large amount of proceeds, with more than one-quarter of total proceeds in local currency. But once more, rates were up for all offered instruments.
In total, the MoF borrowed almost UAH16bn (US$566m) where one-third was in hard currency. This week, the MoF sold bills denominated in US dollars with maturity next October for US$204m (UAH5.7bn). There was increase in rates too, by 30bp for the cut-off rate and 29bp for the weighted-average, to 3.8% and 3.79%. respectively.
The smallest increase was for the three-month bills, where the cut-off rate remained unchanged at 10% while the weighted-average rate was up 11bp to 10%. This paper was the most in demand from the market with total demand almost UAH5bn (US$175m), but MoF accepted just part of it.
Other instruments saw an unusual increase in rates by 25-50bp, except for the four-year paper. This note hasn't been offered since February, prior the COVID-19 lockdown, therefore, market conditions have changed materially.
The four-year note saw large demand, UAH2.7bn (US$95m) in 28 bids, and the Ministry decided to accept most of it. Only two bids amounting to UAH250m (US$9m), or less than 10% of demand, were rejected. To accept most of demand, the MoF had to sizably increase interest rates compared with February by 216bp for the cut-off and by 205bp for the weighted-average, to 12.25% and 12.04%, respectively. But compared with the three-year paper sold yesterday, this increase was insufficient, as rates were set just 25bp and 15bp higher.
The high level of interest in this auction indicates that the MoF can borrow at least UAH30bn (US$1.1bn) in the local market later this year, where a large portion will be provided by FX-denominated bills. This month, the MoF has to repay about US$400m in FX-denominated paper redemptions and yesterday, it refinanced just half of this amount. However, for local-currency instruments, demand may be less active and will depend on the interests and opportunities of local banks to use NBU refinancing loans for new purchases, as local currency redemptions this month will amount to just UAH10bn (US$0.4bn).