For the second time in a row, yesterday, the Ministry of Finance has borrowed less than it had to pay today. The pause in investor activity continues, although there are currently enough preconditions for this pause to end.
Relatively high interest rates on UAH bonds both in nominal and real terms make these assets attractive to both non-residents and domestic investors. In addition, some adjustment of the exchange rate against the background of a steady current account surplus and favourable terms of trade improved conditions for non-residents.
However, currently, neither non-residents nor domestic investors are in a hurry to buy new local-currency debt. In some cases, they are looking for an even higher rate.
The greatest demand yesterday was for the two-year securities. It was for this issue that the Ministry of Finance even raised rates to meet all demand. On one hand, this indicates the desire of investors for higher yields, and on the other, the Ministry's need for funds is gradually increasing. During the second half of the year, debt redemptions in local currency will amount to almost UAH86bn (US$3.1bn), and it is necessary to attract about UAH108bn (US$3.9bn) more to meet budget requirements.
However, the rate increase was only for one issue, and it was insignificant, only 9bp to 12.09%. Earlier this year, similar securities were sold at a very close level, 12.05%. The rest of the instruments offered yesterday received bids at the level of the cut-off rate of the previous auction.
There was considerable demand for 12-month bills, but other instruments did not see as much demand. So, there is no particular excitement at the moment. However, taking into account the repayment schedule, the coming weeks are not problematic for the Ministry of Finance. The next redemption in the amount of UAH15.6bn (US$0.6bn) in local currency is scheduled for 21 July, and there is enough time to accumulate the necessary resources in budget accounts for this redemption.