ICU Bond Market Insight: 8 February 2023

On Feb 7, the Ministry of Finance raised UAH12.4bn (US$340m), more than half of which was in hard currency. Almost the entire volume of UAH borrowings came from reserve bonds.

After a one-month hiatus, the Ministry placed FX-denominated bills yesterday. Two bills were due this year: one in USD with redemption in July brought US$174m to the budget, and the second in euros due in August provided the budget with just EUR6.9m. So, at the current official hryvnia exchange rate, this is UAH6.6bn or 53.3% of yesterday's borrowings.

At the same time, UAH bonds, which are not eligible to cover banks’ mandatory reserves, received low demand yesterday and brought only UAH64m (US$1.8m) to the budget.

Again, the "reserve" bonds maturing in May 2025 were the most interesting. They received 43 bids for UAH32.5bn (US$890m) (par value), but the Ministry was ready to sell only UAH5.5bn (US$150m) of bonds. Therefore, some bidders sent bids at lower rates, so they bought all the volume they wanted. The rest of the offering was divided among the other bidders at a rate of 19.75%. As a result, the weighted average rate decreased by 12bp to 19.59% because bids again started from the level of 19.5%.

The Ministry of Finance continues to place "reserve" bonds with caps, gradually using the preference and need of banks to cover part of the required reserves with special "reserve" bonds. Since the beginning of the year, the MoF sold UAH46.4bn (US$1.27bn) of such bills in five auctions, and yesterday, they were able to place another UAH27bn (US$739m). We expect this level or even greater demand at the next offering of reserve bonds, but it is unlikely that all of it will be satisfied by the Ministry of Finance. We expect the next placement of "reserve" bonds to be for UAH5–10bn (US$136-273m) with a new wave of competition for purchasing the desired volume.

 RESEARCH TEAM: Taras Kotovych

See the full report here.