Bond Market Insight: Oversubscription remains significant

The 1.5 and 2.5-year military bills received almost UAH12bn and UAH18bn of demand vs. a UAH5bn cap for each.

However, most bids were at the cut-off rates of the last auction or very close to them. So, interest rates did not change for a 1.5-year paper; for the 2.5-year securities, rates slid a mere 1bp to 16.19%.

At the same time, reserve bonds again received a surge in demand. It was almost seven times higher than the offer for two-year bonds, and for three-year bonds, it was eight times.

Of course, this demand could have been “inflated” again due to multiple participation with different rates. So, competition developed further, and the minimum bid rates fell by more than 120bp, although the maximum bid rates did not change.

However, the offer was exhausted much sooner and before it reached the bids with the maximum bid rates. Therefore, the cut-off rate for two-year bills decreased by 69bp to 13.5%, and for three-year securities by 71bp to 14.38%.

The weighted average rates decreased by 53bp to 13.42% and by 99bp to 14.03%, respectively.

Regular UAH bonds and USD-denominated military bills saw restrained demand below the cap, with rates at the cut-off level, so all bids were accepted in full.

Segmentation into banking and retail securities developed even further, and now the difference in interest rates has reached two percentage points against reserve bonds.

However, these instruments allow banks to release liquidity and compensate for losses due to lower rates. Accordingly, next week, we may again see significantly greater demand than supply.

However, this will already be a purchase for the future because the Ministry of Finance will most likely offer new bonds, which the NBU will add to the reserve list a bit later.

Therefore, interest rates for new bonds may be slightly higher than yesterday.