Demand from investors declined this week by a factor of two after the peak seen last week. This Tuesday, both the amount in demand and the number of bids declined. Nonetheless, the MoF was able to borrow UAH8bn (US$294m) including UAH6bn (US$221m) in local currency.
The offering for three-month paper was cancelled, while other instruments received UAH6.5bn of demand in local-currency and EUR61m in hard currency. This was less than a half of last week's demand and half the number of bids.
The bills in greatest demand were the 13-month instruments where the MoF set a cap at UAH2bn. Out of 19 bids, three were rejected completely and a few accepted bids were partially filled until the cap was reached. Consequently, interest rates for this paper declined: the cut-off rate by 21bp to 10.99% and the weighted-average rate by 22bp to 10.97%.
Interest rates for two-year bills, which did not have a cap, declined. Both the cut-off and weighted-average rates slid a mere 5bp to 12%. However, the weighted-average rate for the five-year note was up by 7bp to 12.59%, the same level as cut-off rate.
In total, the Ministry refinanced less than half of yesterdays' redemptions, while there were expectations that demand for this auction and the proceeds would at least be the same as last week. Demand for the five-year paper declined, too, which had been expected to receive larger demand from foreigners. It looks like investors took a break and are waiting for the results of the NBU's monetary meeting today, when the NBU key police rate can be changed due to high inflation last month. If the NBU increases the key rate, this decision can have impact on primary market rates, as was seen earlier this year.
Investors may move to the secondary market this week or wait for next week's auction after the key rate is announced. It looks like the new five-year note was added to the auction schedule this Tuesday and for next week to give investors to choose when to purchase these notes.