Yesterday’s auction was the first since the NBU raised the key policy rate. In response, the Ministry of Finance raised rates only on the 13-month bills. The cut-off rates did not change on the other bonds offered yesterday. Under these conditions, a total of UAH3.1bn was borrowed for the budget, including proceeds from USD-denominated bills.
For the third time this month, the Ministry of Finance did not offer bonds with maturities of less than one year. The shortest maturity yesterday was 13-month paper with a semi-annual coupon. This issue attracted the greatest demand, although the amount was restrained at less than a billion hryvnias. Total demand for UAH-denominated bonds was slightly above UAH1.4bn. In fact, the Ministry of Finance increased interest rates only for the 13-month paper. Both the cut-off and the weighted-average rates were up by 16 bps to 11.15%.
The remaining instruments did not receive much demand, although the weighted average rate on the three-year securities fell by 3 bps up to 12.27%.
The placement of USD-denominated bills was as usual. Eleven-month USD-denominated paper was sold at US$67m par value with US$65m of budget proceeds.
In general, the auction wasn’t active, and although the number of bids in total was more than a hundred, the volume of demand was insignificant. It seems that those market participants who wanted to buy bonds directly from the Ministry of Finance took part in the auction. Others likely are waiting to see how the Ministry responds to the performance of budget financing and its readiness to further increase interest rates and offer shorter maturities, e.g. three and six months.
So far, the primary bond market has barely reacted to the change in the key policy rate, so demand is unlikely to be high in the near future. Borrowings may increase in FX-denominated bills, as the MoF has to redeem US$350m of bills this week and some of these funds may return to boost demand in the near future. Although the offering of FX-denominated bills is scheduled for the end of August, it may occur earlier.