In anticipation of meeting large debt repayments in hard currency, the MoF replenished hard-currency accounts to improve readiness for redemption. In local currency, proceeds are steady.
The largest redemption of domestic debt this month is scheduled this week, including UAH11bn (US$400m) and US$800m. Redemptions later this month will be in local currency with the largest one for UAH14bn (US$511m). Therefore, with good performance of budget revenues in May, partially due to quarterly tax payments, it was important for the MoF to replenish hard-currency accounts to prevent the large decline of international reserves.
This goal was met successfully, at least for now. By offering bills with at least 14 month maturities, the MoF was able to borrow UAH359m, or 43% of domestic debt repayments in hard currency scheduled for this month. FX-denominated bills will be offered during the next two weeks, also, so there is a good chance to refinance all repayments. There were no changes in interest rates, which remained at 3.7% and 3.9%, respectively, for the one and two-year bills. The Ministry rejected just one small bid for US$0.3m with an interest rate 5bp higher than the cut-off rate.
For local-currency bills, demand remains mostly unanimous with just two bids were rejected yesterday. One bid was rejected for 14-month bills amounting to UAH1m with a rate 5bp above the cut-off rate. For the four-month paper, part of demand was rejected due to the cap, including one bid with a rate 50bp higher than the cut-off rate.
As the result of yesterday's auction of UAH-denominated bills, the budget will receive UAH6bn, almost half of today's debt repayments (including interest). This amount is close to last week's borrowings, and together, these borrowings cover this week's repayments.
Local-currency budget financing could bring in more funds, but for now, the budget does not need large proceeds. The MoF likely will replace bills due December 2021 with another maturity due at the beginning of 2022 with a cancelation of caps. But for now, Treasure accounts have enough funds, which will allow redemption of local-currency debt without large new borrowings or impact on other budget expenditures.