On Sep. 3 the MoF borrowed more than UAH20bn, increasing interest rates for most offered bonds.
The Ministry received almost 41% of proceeds from USD-denominated bills. The Ministry sold the planned US$200m of securities and rejected nearly 1/3 of the demand for this paper. The MoF reduced only the weighted-average rate by 1bp to 4.65%, keeping the cut-off rate unchanged at 4.66%.
Interest rates for 12-month bills remained unchanged, too, at 14.65%. The Ministry rejected just one bid for UAH10m at 14.75%.
However, the MoF had to increase interest rates for longer maturities to satisfy demand or to sell planned amounts of bonds.
For the two-year paper, the MoF offered UAH5bn, but received UAH4.1bn of demand. The low rate was 15.4%, while most bids were closer to 15.6%. Therefore, the MoF increased the cut-off rate to 15.6%, by 15bp compared with last week, but 10bp compared with the auction a month ago.
For the three-year note, demand was mainly at 16.6%, which induced the MoF to increase the cut-off rate by 11bp to 16.6%.
For the 3.5-year paper, the MoF received significantly larger demand than the previous offering a month ago, but it was a bit more expensive. Most bids were at 16.9%, causing the cut-off rate to increase by 10bp to 16.9%.
The summer lull is likely coming to an end. The MoF probably needs more funds to cover the budget deficit, while the local bond market does not expect interest rates to go down. Yesterday's rate increase does not look like it’s starting a trend, but it indicates that a new rate-cutting cycle will not start soon.
