Yesterday, the Ministry of Finance attracted only UAH47.3m (US$1.3m) through military government bills, the smallest amount since they began issuing these instruments in March, and the smallest amount of proceeds in local currency in more than two years.
At this auction, only two UAH military bills were offered with maturities of seven and almost 13 months. Demand was very restrained, and some bids for longer maturities were at different interest rates.
There were eight bids for the seven-month paper, among which approximately two-thirds of the volume was requested through non-competitive bids. All competitive demand was at a rate of 12%, which was acceptable to the Ministry of Finance, so all bids were satisfied, and UAH27.5m (US$0.8m) was raised.
Seventeen bidders were interested in paper with maturity at the end of September 2023, but the interests of the Ministry of Finance did not coincide with all of them. Three-quarters of the demand was in non-competitive bids, so they were all satisfied. From the competitive demand, the Ministry chose only bids with interest rates at 14%. Nine bids for UAH1.4m with interest rates of 16% were rejected. It is interesting that this issue was placed at a rate of 16% as recently as last week, but by yesterday’s auction, the Ministry equated it with 12-month bills and actually decreased the rate to 14%, the rate at which securities with maturities of 10-12 months had been sold.
Thus, the volume of borrowings in local currency fell to the lowest level not only this year, or since the full-scale russian invasion, but also in more than two years. In 2020, foreigners had actively reduced their portfolios, and during periods of instability, domestic investors traditionally preferred FX-denominated instruments. Therefore, low local-currency proceeds were not accidental.
They are not accidental even now, as due to high inflation and with a NBU key policy rate of 25%, investors are in no hurry to buy new bonds on the primary market with rates of 12-14%, especially on the eve of the regular meeting of the NBU board on monetary policy, where the key policy rate will be set for the coming weeks.
