ICU Weekly Insight, 30 August 2023 - Lower Rates for Reserve Notes

The Ministry of Finance raised UAH7.3bn yesterday, the most significant amount raised in one auction this month. Strong demand continues to put pressure on bids for the longest instrument, which will potentially become new "reserve" paper.

Demand for one-year bills was the lowest—UAH170m (face value) in six bids. All demand was fully satisfied at an unchanged rate of 17.8%.

Demand for 17-month military paper almost doubled from the previous week. The total volume of bids was more than UAH1.7bn, and it was fully satisfied at an 18.35% rate, also unchanged during August.

New bonds maturing in November 2026 attracted the greatest number of investors. The total volume of demand reached UAH8.7bn in 35 bids, with interest rates from 19% to 19.25%. However, the MoF set the cap at UAH5bn, and this volume was exhausted at 19.2%. The MoF set the weighted average rate at 19.18%. At the auction's end, the MoF rejected almost UAH3.7bn of demand.

Investors seek to fix high interest rates for the longest possible time, so they continue to actively compete for the opportunity to purchase three-year notes and submit bids at low interest rates. Such demand helps the Ministry of Finance attract the desired amount of funds and reduce the interest rates on three-year notes, bringing them closer to shorter bonds.

Research team: Taras Kotovych.

See the full report here.

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