Bond Market Insight-Government bond auction results: awaiting the VAT bond issue

Yesterday, the MoF managed to attract quite a sizable volume of funds by placing a range of local currency bonds, with the total amount of proceeds adding up to UAH1.3bn, gaining ground in terms of yields, which dropped compared to the previous two auctions.

Thus, yesterday the 9-month note was offered yielding 13.9%, versus 15% a week ago and an implied yield of 14.2% two weeks ago (judging from the placements of 6-month and one-year notes at that auction). Despite the above, the primary market participants on the buy side, as yesterday\'s auction results show, do require higher compensation for the risk of holding such an asset. Thus, out of the total volume of 116 bids submitted yesterday for the auction, amounting to UAH5.3bn, only 17 buy orders were accepted by MoF, pouring UAH1.3bn into the state coffers.

Furthermore, the bidders as a whole required higher yields for the bonds than the levels at which the MoF accepted the bids: the range of required yields for a 9-month note was 13.7-19.0%, while for a 2-year note, it was 14.0-20.0%. Ultimately, yesterday the market was buying predominantly short-dated discount bonds, which accounted for 89% of the total volume of funds the MoF realized in proceeds yesterday, of which a 31% share were funds from a 3-month note yielding 12% coming due on 14 July.