MoF refreshes offering of military bonds

Bonds: Domestic debt rollover slightly up in November

Borrowings by MoF declined in November vs October, but domestic debt rollover rose slightly on significantly lower redemptions.The MoF borrowed UAH79bn in November, 23% less than a month before, including UAH71bn and US$188m. At the same time, the MoF repaid UAH30bn and US$287m in November, which is just 60% of redemptions in October. Therefore, the total rollover rate for the domestic debt was 188% in November and 157% in 11M24, up by 4pp compared with 10M24. Rollover for UAH-denominated debt was 237% in November and 188% in 11M24, up from 181% in 10M24. The rollover for USD-denominated debt was at just 65% in November, implying the 11M24 rollover was down to 113% from 119% in 10M24. The rate for EUR-denominated debt remained unchanged at 83% for the fourth month, as there were neither repayments nor borrowings in euros.

ICU view: The MoF continues to borrow substantially more than what is needed to refinance maturing debts, and clearly prefers borrowings in local currency. In December, the MoF plans to redeem several bonds worth UAH25bn, less than the monthly average redemptions this year. As there is no redemption in foreign currencies this month, the MoF only plans to offer UAH bonds. Therefore, we anticipate rollover rates going up in December for UAH debt and in total, while they will remain unchanged for debt in hard currencies.

Bonds: MoF refreshes offering of military bonds

Last week, the MoF sold a new 3.5-year UAH note and from this week for all further offerings it replaces all military bonds with new securities.The MoF borrowed UAH19bn last week by selling only UAH-denominated bonds, including UAH10bn from two military bills (over UAH5bn each), almost UAH4bn from the regular 3-year note, and UAH5bn from the new 3.5-year paper, which the NBU may add to the list of reserve bonds. See details in the auction review.For tomorrow's auction, the MoF announced the offering of three new military bonds due in February 2026, April 2027, and November 2027 and will also suspend offering of older papers. The MoF will cap the offer of each bond at UAH5bn. At the same time, the MoF increases the cap for 3.5 years to UAH7bn.

ICU view: The MoF has reached its usual issuance cap of about UAH20bn for each military and regular bond and will replace them with new maturities. The December auction schedule does not include new offerings of FX-denominated bills. Therefore, the MoF will focus on UAH borrowings, which will likely substantially exceed budget needs for debt rollover. We expect interest rates for military bills to remain broadly unchanged while huge demand for reserve notes from banks will push interest rates down.

Bonds: Eurobond investor optimism cools

Last week, fluctuations in Eurobond prices were insignificant, as there was no critical news about Ukraine.Prices for most Eurobonds fluctuated within a 1% range and remained little changed last week. Only UKRAIN'A'29 was up by about 2%. Spreads to the benchmark (UST) widened by 25bp, keeping Ukrainian Eurobonds YTMs unchanged. At the same time, the EMBI index rose by 1.1%. VRIs slid by 0.6% to 76.2 cents per dollar of notional value.

ICU view: Treasuries prices rose slightly. Therefore, investors' optimism, which had strengthened ahead of and after the US elections, started to cool gradually. Prices and YTMs stayed unchanged, reflecting wider spreads. We expect insignificant fluctuations in the coming weeks, as investors will wait for the disclosure of new US President's initiative to strike a peace deal in Ukraine.

FX: NBU renews hryvnia weakening

Last week, the NBU allowed the hryvnia to weaken to a new record low.The total FX market deficit increased last week as demand for hard currency rose in the interbank segment. Net hard-currency purchases rose by 41% WoW to US$408m, including US$201m in the interbank segment (tripled from the previous week) and US$207m in the retail segment (down by 11%). However, the NBU increased interventions by 20% to US$709m. The official exchange rate weakened by 0.6% to UAH41.58/US$

ICU view: The interbank market shortage was the key driver of the hryvnia's weakening. However, the NBU did not increase its weekly interventions significantly, allowing the hryvnia to stay above UAH41.5/US$. It is unlikely that this pace of weakening will be maintained in the coming weeks, but we think the NBU may allow the hryvnia to weaken to above UAH42/US$ until the end of the year.

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.