Emphasis on reserve bonds

The MoF sold a new set of bonds that banks can use to cover part of required reserves. These instruments provided the state budget with almost the entire volume of proceeds.

The shortest issue yesterday was paper with a maturity of almost eight months, which the Ministry of Finance offered with a cap of UAH500m (US$13.7m). But the demand for them was much smaller, only UAH216m (US$5.9m). The MoF accepted most of demand at a rate of 15%, mainly for non-competitive bids.

Two instruments maturing next year were in low demand, which is generally typical of these tenors. The Ministry of Finance refused to sell euro-denominated paper at the usual rate of 3%, as it did three weeks ago, apparently wanting to pay a lower price for such short-term borrowings.

The most significant demand and proceeds were from bills maturing in May 2025. Yesterday morning, the NBU published a decision that these bonds would be allowed to cover part of required reserves. However, the Ministry of Finance limited the offering to UAH10bn (US$273m).

As a result, demand amounted to UAH25bn (US$692m) with competitive bids from 19.5% to 19.75%. The Ministry accepted all 42 bids, but only some of the participants received the requested amount, as their bids were with lower rates than the maximum, while the rest of the bidders received part of their bids in proportion to the size of the bid within the rest of unused cap of UAH10bn.

In general, in January, the Ministry of Finance sold UAH49bn (US$1.3bn) of local-currency bonds, of which almost UAH41bn (US$1.1bn) (par value) can be used by banks to cover obligatory reserves. Given the NBU's estimates, the volume of obligatory reserves may increase by UAH141bn (US$3.8bn), half of which can be covered by special bonds. So far, banks have invested only about UAH43bn (US$1.2bn), so in the coming weeks, the Ministry of Finance should be able to count on attracting another UAH30bn (US$0.8bn) from banks using "reserve" bonds. Such an amount will be more than enough to refinance the UAH redemptions scheduled for February.

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Official results on issuance of domestic bonds