Yesterday, only UAH3.5bn (US$94m) was borrowed for the state budget. But almost all of this amount was attracted thanks to the increase in interest rates.
In general, demand was small, only UAH4.8bn (US$131m), which was only UAH0.7bn (US$19m) more than last week. While last Tuesday, demand was concentrated on 11- and 14-month bills on which interest rates were up at the end of June, yesterday's demand for 14-month paper was much smaller and moved to five-month T-bills.
In total, demand for five-month securities was in 17 bids, and almost all of them were with rates of 12%. So here, the Ministry had to choose whether to make a small step toward the market or to limit the amount of funds it could raise. As a result, UAH3.4bn (US$92m) was raised with a cut-off rate of 12%. But the weighted average rate turned out to be lower at 11.99%, so demand for lower rates did not go unnoticed, although was small.
But a compromise could not be found on the 11-month bills. Here, most bids were with a rate of 14%. One participant wanted a higher rate of 18%, and although this bid could have provided the budget with more than UAH1bn (US$27m), it was rejected. The rate for this issue was kept at 14%.
At the same time, interest in 14-month paper with a rate of 16% seems to have run out, because demand was less than UAH50m (US$1.3m).
Investors were also not interested in EUR-denominated securities, the sale of which raised only EUR0.8m or UAH32m.
So, over several recent weeks, rates on UAH bills have gradually changed, allowing the Ministry of Finance to attract small amounts every week. But after the NSSMC removed most of the restrictions on the bond market, the potential to purchase bonds on better terms than in the primary market increased. So, we expect a similar demand migration to higher rates for some time until the conditions in the primary and secondary markets meet and create a new yield curve.