After a three-month break, the MoF offered an ordinary three-year note yesterday. The new bond was oversubscribed, and the MoF did not accept all bids.
The 14-month military bill received 17 bids, amounting to just UAH317m, one of the smallest amount of demand for this paper. Interest rates in bids were as expected. Therefore, the MoF accepted all of them, receiving UAH328m of proceeds.
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Demand for the 1.8-year ordinary paper was more significant. Despite the small number of bids, the MoF accepted them and borrowed UAH1.1bn. In contrast to the previous two primary auctions, no bid required an increase in yields.
The new three-year ordinary note received 18 bids for bonds worth UAH6.3 bn. Most of the bids, (for UAH2.8bn), were with interest rates in the 17.7-17.8% range or were non-competitive. The MoF accepted such bonds, rejecting just three for UAH3.5bn, which required an increase in the cut-off rate up to 18.5%.
The MoF agreed to the maturity premium for the three-year note at 70bp to 1.8-year paper or with 15 months or longer tenor, or 5bp less than between 14-month and 1.8-year bills. However, the new cut-off rate is 131bp above the rate for the same maturity sold at the beginning of January. The MoF increased yields this year by 125bp for the one- and two-year securities.
Finally, the MoF received UAH4.2bn of budget proceeds, a good amount without reserve bonds. The MoF will offer a special reserve bond today in exchange for reserve paper due in a month. This week’s offering demonstrated the MoF’s unwillingness to hurry up in preparation for the 100% rollover.
Meanhwile, the MoF held a second bond exchange auction. The Ministry received enough bids to sell the planned amount of bonds.
The MoF offered banks the opportunity to buy new reserve bonds due in October 2028 in exchange for another issue of reserve bonds with a month’s maturity at the end of May. Total demand was UAH13.4bn in 22 bids vs. the cap of UAH10 bn. The MoF fully rejected only three bids, but some may have been partially satisfied. Interest rates ranged from 14.95% to 15.97, but the cut-off rate set at 15.6% (65bp above last week’s auction), and the weighted-average rate at 15.45% (64bp above last week’s auction).
Such a difference may result from banks’ wish to have yields above the NBU key policy rate and because this exchange was for bonds maturing in a month, not reinvesting funds from recent redemptions.
Finally, the MoF will make early redemption of bonds due in May and reduce its need for borrowings. However, banks still need reserve bonds to reinvest funds from the redemption two weeks ago. Therefore, we may see a new offering of reserve bonds soon.
The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.