The MoF on July 23 auction received the lowest demand for a primary auction over the last year and a half. Therefore, budget proceeds were the weakest since January 2023. The total demand was just UAH1.4bn, one-tenth of the offered amount, and mostly received for 14-month bills (93%).
Interest rates in bids for 14-month paper slightly declined. The lowest rate slid by 4bp to 14.6%, and the highest rate was 14.65% or 5bp lower. Therefore, the cut-off rate slid by 5bp and the weighted average rate by 2bp to 14.64%. The MoF accepted all received bids, borrowing almost UAH1.4bn.
At the same time, two- and 3.6-year instruments received insufficient demand, just UAH63m and UAH29m, respectively. Cut-off rates for these two securities remained steady at 15.4% and 16.8%.
The state budget received UAH1.4bn of proceeds, the smallest amount since the debut auction in January 2023, when the MoF borrowed just UAH1.1bn. However, this small amount of funds is fine for the government. All redemptions paid this year have already been refinanced, and the next one is scheduled in two weeks.
Lack of redemptions is the base reason for low demand, as investors do not receive large redemptions to reinvest. However, the main reason for low activity is awaiting the NBU's decision on interest rates and the publication of its new macro forecast both on July 25. Investors are in no hurry to buy bonds, as the NBU may pause its rate-cutting cycle.
