ICU Weekly Insight, 13 September 2023 - Demand for Government Bonds Remains High

Yesterday, most of the demand received at the auction was for UAH bonds, similar to the previous placement. In total, borrowings more than doubled from last week.

Investors' interest in one-year bills, which did not see any demand last week, revived. Yesterday's demand was moderate in six bids for UAH823m. However, one bid for UAH350m required an increase in the cut-off rate by 10bp, so the MoF rejected it. Therefore, the MoF sold UAH473m of bills (par value) at 17.8%, attracting UAH495m.

The Ministry again planned to issue military bills maturing in June 2025 for UAH4bn (par value). These securities received much higher demand than supply: 27 bids amounted to UAH5.9bn. Compared with last week, the minimum interest rate in demand remained at 18.15%, while the maximum interest rate was the same as the cut-off rate of the previous auction. So, in the end, the Ministry of Finance accepted all bids. However, non-competitive bids were partially filled within the limit (UAH1.2bn for non-competitive applications) at the rate of 18.34% (3bp higher), competitive bids with rates below the maximum were accepted in full, and competitive bids with the maximum rate were partially accepted within the rest of the cap.

The cap on reserve bonds failed again. Demand was almost 4/5 of supply, and only a small amount was with rates below the maximum. So, the Ministry of Finance satisfied all competitive bids at the rates in the bids and non-competitive demand at 19.19%, the same as last week.

On the eve of the large redemption of USD-denominated bills, the MoF placed a small amount of new USD-denominated paper. The MoF set a cap for new bills at US$150m (par value). There was no significant hype for them: demand amounted to US$202.7m, a third more than the supply. Rates in competitive bids were closer to those in the previous placement of USD-denominated bills at the end of July, which ranged from 4.64% to 4.8%. So the MoF accepted all bids, but not in full, similar to UAH military bills.

The Ministry of Finance received almost UAH14.3bn, including UAH9bn from local currency instruments, significantly more than last week, and the rest from USD-denominated paper, allowing the refinancing of part of tomorrow's repayments. At the same time, this demand could be significant for two reasons: the wave of interest of foreign investors in UAH military paper, which will allow coupon payment repatriation in December, and the influence of expectations of a further reduction of the NBU key policy rate at tomorrow's meeting of the NBU board.

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Accidental Ukrainians: The Russian Invasion Through American Eyes

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See the full report here.