ICU Weekly Insight, 23 August 2023 - Interest in Reserve Bonds

The Ministry of Finance raised UAH3.3bn yesterday, satisfying only 22% of the demand at the primary auction.

Demand for 14-month bills was the lowest yesterday—UAH215m in five bids, which mainly was competitive and unanimous with a rate of 17.8%—and it was fully satisfied. The MoF received UAH223m for the state budget.

Demand for 1.5-year military paper increased to UAH914m. There were 19 bids, with two-thirds of demand in non-competitive bids. Therefore, the MoF attracted UAH943m, satisfying all bids at 18.35%.

The reserve notes were most in demand at this auction. The offer was limited to UAH2.1bn, slightly below the amount of rejected demand last week. It was almost seven times oversubscribed, with demand amounting to UAH13.3bn, almost double from last week. Interest rates in competitive bids ranged from 19.0‒19.5%, but the cap worked out at 19.25%. So, the cut-off rate declined by 25bp to 19.25%, and the weighted average rate fell by 28bp to 19.21%.

With yesterday's auction, the MoF increased reserve paper outstanding to almost UAH20bn (face value). Of course, the Ministry may offer a new issue next week, but it will take several weeks until the MoF includes it in the benchmark list, and the NBU will allow the use of new bonds to cover part of required reserves. Therefore, demand for new securities will decline prior the next NBU monetary policy meeting, and they will have lower yields.

Research team: Taras Kotovych.

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