Bond Market Insight-Government bond auction results: improved risk perception drives yields down

The changeover in the government breathed a new impetus into the local currency debt market by improving the credit risk of the sovereign in the eyes of investors, who queued last Tuesday for the scheduled government bond auction. Total bid amounts for the government bonds added up to UAH9.28bn, while the total number of bid orders filed in the auction was 162.

These numbers tell much about the heightened interest in the asset, as the previous bond auction, which was held right on the eve of Parliament\'s vote to install Mykola Azarov as the next prime minister saw a total volume of the 85 bid orders filed amounting to only to UAH3.55bn.

As a result of heightened interest to the offering, the yield curve on the auction results moved down sharply, with the 6-month bond yield dropping by 2ppt to 17% over the week since the previous auction on 9 March, when a bond with the same maturity was sold at 19%. Another short-term bond due in January 2011 was sold at 16% YTM, down 6.75ppt from the 22.75% YTM at which this bond sold two weeks ago. The placement of these two bonds raised UAH660m at par value of bonds, or a 96.2% share of total proceeds.