At the last primary auction in 2020, the Ministry of Finance borrowed UAH23.6bn (US$836m) for budget financing with insufficient changes in interest rates.
For this auction, the Ministry offered the same bonds as a week before, excluding the four-month bills and replacing the 10-month USD-denominated with a new bill with a three-month maturity.
After months of rate increases, the three-month USD-denominated paper saw a decline in the rate. The last time this paper was offered in March 2020. By comparison, rates slid by 10bp to 2.9%, while the amount raised being almost three times lower.
For UAH-denominated instruments, interest rates were up for only the 11-month bills. This increase was not material, just 5bp for cut-off rate and 8bp for the weighted-average rate, resulting in both being set at 11.7%.
However, to keep rates unchanged, part of demand was rejected. For six-month bills, the Ministry rejected almost 30% of demand while for 1.5- and two-year paper, they rejected almost 10% of demand.
Once again, borrowings were mostly with redemption next year, while longer maturities that are usually attractive to foreigners received low demand. Most likely, this was due to the year end and holiday season.
Nevertheless, the last auction in 2020 made a definite impression: movements in interest rates were insufficient, amounts raised were generous, and an unusual placement of three-month USD-denominated paper that provided the budget with large amount of funds and low price was well received.
Keeping rates mostly unchanged can be seen as a message that next year, the Ministry is not going to actively increase rates. Of course, that will depend on the balance in Treasury accounts at the beginning of 2021.