On Oct. 8 primary auction, the Ministry of Finance raised UAH30.3bn for the state budget, mainly from UAH bonds. This result is slightly below the June 2023 auction, when most proceeds came from FX-denominated bonds.
Four out of six UAH bonds were oversubscribed, and only 12-month and 3.5-year bonds saw demand below the UAH5bn cap.
Twelve-month bills received 23 bids, amounting to UAH2.4bn, with interest rates similar to last week. The longest, 3.5-year notes, received 15 bids, amounting to UAH0.6bn at a 16.8% rate. So, the MoF fully accepted all these bids.
Huge demand was received for 1.5 and 2.5-year military bills. It was slightly above the cap, but most bids had rates 15bp above last week. Therefore, the MoF had to choose to reject most of the demand or increase cut-off interest rates. The Ministry decided to receive more funds at 15.25% and 16.25% cut-off rates.
The most interesting issues were two and three-year bonds, which NBU can allow banks to use to cover reserves. Two-year bills were 6x oversubscribed, and three-year notes were oversubscribed almost 7x.
The MoF accepted only 12 out of 25 bids for the two-year paper and 15 out of 31 for three-year notes. 30% of the cap was set up for non-competitive bids (accepted at a weighted average rate). Due to significant oversubscription, the cut-off rate slid by 50bp to 15.1% for two-year bills and by 49bp to 16.1% for three-year notes.
On Oct. 8, the Mof received 20% of US$150m of funds from FX-denominated bills without material changes in interest rates. The MoF set a new record high in borrowings. The main support came from new reserve requirements, which will impact demand in the coming weeks. Interest rates on new potential "reserve" bonds may decline, while an increase in rates for military bills may be a one-day event.
