ICU Bond Market Insight: 9 Feb. 10, 2022
The total amount of funds raised on Feb. 8 from the primary bond auction increased to Hr 2.1bn, but, again, it required specific decisions from the Ministry of Finance.
The majority of funds were raised through three-month bills. Demand amounted to Hr 1.7bn at face value in 28 bids and provided the budget with Hr 1.6bn of proceeds. Interest rates in demand were mostly at 11.5%, the same as two weeks ago, so there were no changes in the cut-off and weighted average rates.
After two unsuccessful placements of 12-month securities, yesterday, demand was more diverse, and the MoF agreed to increase the cut-off rate by 10bp to 12%. Most bids were satisfied, but for very small amounts. Out of Hr 322m in demand, two bids for Hr 300m were rejected, as they requested an increase the cut-off rate up to 12.49%.
The same level of 12% was set by the Ministry for 15-month bills, but accepted demand was a mere Hr 20m.
For the rest of the Hr-denominated instruments, rates did not change. Demand for two-year securities was at the same level as before, and for longer maturities, there were no competitive bids at all. Therefore, once again, the MoF had to use the right to accept non-competitive bids at the same level of interest rates as previously.
Demand for USD-denominated bills remained low also. Although almost tripling compared with last week, it was only $12m. Compared with last week’s debt repayments in USD, it did not even cover last week’s interest repayment.
Therefore, although the amount of borrowings has increased, it wasn’t enough to improve refinancing of debt redemptions done since the beginning of the year. Under current market conditions, the government should not expect large borrowings at current rates. To attract most of the funds from demand, they will likely have to gradually raise interest rates to increase investors’ interest in the primary auctions.
RESEARCH TEAM: Taras Kotovych
Complete report (5 pages)
