On May 14, the Ministry of Finance continued to lower interest rates on UAH bonds, especially on three-year notes, which were significantly oversubscribed.
Demand for 13-month bills was slightly below the cap. All competitive bids were submitted at rates lower than the previous auction, so the Ministry satisfied all demand and set the cut-off rate at 15.15% (down 10bp from last week) and the weighted average rate at 15.12% (down 13bp from last week's auction).
The two-year paper received bids for a total of UAH6.8bn, which was more than double the cap. Most bids had a 16.2% interest rate, which was 10bp lower than last week's auction. Therefore, the MoF set the cut-off rate at 16.2%, and the weighted-average rate decreased by 15bp to 16.14%.
Three-year notes were four times oversubscribed and received over half of all demand for UAH bonds at the auction. Such oversubscription gave the Ministry room to manoeuvre. The MoF increased non-competitive bids' share in accepted demand to 35% of the cap, probably to satisfy only bids with rates no higher than 17.2%. Therefore, the MoF set the cut-off and the weighted average rates at 17.2%, 30bp lower than in the previous auction.
Conditions for EUR-denominated bills remain unchanged. The cut-off and weighted average rates are still 3.25%.
As a result, the Ministry of Finance attracted almost the same amount of UAH funds as last week. All interest rates are close to exceeding the reduction of the NBU rates. The low level of inflation increases expectations of a more aggressive NBU key rate cut, so investors will compete more for longer instruments, locking in yields for a longer time.
