May's debut primary auction did not provide the budget with a large amount of funds. However, all funds raised were new funds for budget financing, as this week, there are no UAH-denominated redemptions. In total, the budget received UAH1.4bn of proceeds, which were evenly distributed between maturities. However, for six-month bills part of demand was rejected.
Low demand was expected, as the Ministry decided not to offer all maturities from its auction schedule. Likely, demand for the maturities not offered would have been very small.
The largest demand was submitted for the six-month bills, but due to the cap, borrowings were just UAH480m (US$17.4m). A slightly larger amount, UAH496m (US$18m), came from 15-month paper, and UAH451m (US$16.3m) from the three-year note. For the last two maturities, the 15-month and the three-year, the MoF accepted all bids in full.
Interest rates for all instruments remained steady. Only a small part of demand was at higher rate, and that was for the six-month bills. For longer instruments, demand was unanimous at the same level as cut-off rates at the previous auction for similar maturities.
Given that the next redemption of UAH-denominated bonds will take place next week, so far there has been no special need for local-currency funds. The Ministry may use the borrowed amount for interest repayments, as well as using funds from other sources. But next week, the amount of demand and borrowings may increase since investors may wish to reinvest money from redemptions in new securities. However, we should not expect higher rates, as by receiving large tax payments in May, the Ministry of Finance can use this source for redemptions and increase borrowing in June or even later.
