ICU Bond Market Insight: 14 December 2022

The auction held on Tuesday, Dec. 13, provided the state budget with the largest amount of funds YTD from UAH bonds, which almost completely covers local currency redemptions scheduled for today.  The MoF raised most funds through two-year bills, which saw a new interest rate of 19.5% last week, and, on Dec. 13, not one bidder tried to get a higher rate. This paper made it possible to borrow almost UAH6.8bn. 

Another UAH4.1bn was raised by the MoF using 12-month bills, with the interest rate kept unchanged at 16%. Demand was mostly unanimous, and compared with last week, it increased dramatically from UAH0.2m to UAH4.4bn. One bid that amounted to only UAH100m was rejected as it required a rate increase to 25%. 

The replacement of seven-month bills with five-month paper also worked because after UAH168m in demand last Tuesday, the demand seen Dec. 13 came to almost UAH3.3bn. Here, too, one bid required a rate increase to 24.5% for less than UAH100m of funds, so the MoF rejected it.  On the other hand, bonds with maturities between one and two years received little demand: UAH169m for 15-month and UAH0.4m for 19-month bills.

Interest rates for the 15-month paper slid by 50bp to 18.5% (the level seen at the end of October), after the MoF agreed to raise the rate to 19% two weeks ago. Most of the demand for this paper was non-competitive, so all bidders received a lower yield than in November. 

As for 19-month securities, after rejecting last week's demand for UAH3bn with a rate of 19.25%, the Ministry of Finance received one competitive bid with a rate of 19% and one non-competitive bid, but in total, only for UAH0.4m. Perhaps all of last week's demand has shifted to two-year paper. 

More than UAH14bn was raised on Dec. 13, allowing the Ministry of Finance to cover almost all of today's UAH14.4bn of redemptions. This is very important for the Ministry of Finance now to be able to refinance domestic repayments. At the end of November, UAH108bn of redemptions were not refinanced in the primary market. Now this amount did not increase, but slid by UAH0.6bn.

Source: Ministry of Finance of Ukraine, ICU.