MoF raises interest rates again
The auction held on Nov. 29 brought more than UAH21bn (US$573m) to the state budget. Although the majority of funds was raised in euros for short tenors, it was important that the Ministry of Finance resumed raising rates for military government bonds.
Five-month military bills in Euros brought the largest volume of funds to the budget. The MoF raised the interest rate for this paper by 50bp to 3% compared with the previous similar placement. The Ministry accepted all 12 bids and received almost EUR382m.
Another issue offered in euros with maturity in January 2024 with the put-option was less attractive to investors and brought the budget EUR72m at the unchanged rate of 2.5%. The MoF raised UAH3.8bn (US$105m) in local currency, which was three times more than last Tuesday, despite there was less aggressive demand.
For four-month military bills, the Ministry of Finance rejected only one bid for UAH100m (US$2.7m) with a rate of 24.5% and attracted UAH3.2bn.
The interest rate for this paper remained unchanged at 14%. Demand for the 10-month securities was significantly lower than last week, but compared with the shorter paper, they saw two aggressive bids at rates of up to 25%.
The rest of the demand had rates between 14% and 16%. So, the Ministry set a new compromise rate level, increased the cut-off rate sharply by 200bp up to 16% (the coupon rate for this paper), and the weighted average rate by 199bp up to 15.99%. UAH255m (US$7m) was raised with this instrument.
The Ministry of Finance agreed to raise rates on 15-month military government bonds by 50bp up to 19%, which made it possible to attract another UAH307m (US$8.4m). Rates for ordinary (non-military) bonds with maturities of 14 months and almost two years did not change, but demand for them was also insignificant. Together, they brought only UAH24m (US$0.7m) to the budget.
Therefore, the Ministry of Finance continued to shift the yield curve for military government bonds, although the rates of primary placements still remain significantly below the NBU key policy rate. Under such conditions and refusal to satisfy aggressive demand, investors direct free funds partly to the secondary market, as evidenced by active bond trading last Friday.
Under such conditions, investors will continue submitting more attractive bids. Still, the Ministry will again try to raise rates sparingly and attract more funds at a lower price using, in particular, FX-denominated bonds.
Research Team: Taras Kotovych
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