Bond Market Insight-Government bond auction results: Proceeds rise, yields decrease

The MoF\\\'s modus operandi of decreasing yields and receiving the minimum proceeds by cutting the majority of demand at times was supported by a good level of the state treasury account balance and proceeds from the Ukrtelecom privatisation.

But, in using the above-mentioned financial resources for debt principal and interest payments, the MoF yesterday substantially increased its borrowings by 2.7x.

110 bids were submitted at yesterday\\\'s auction, and the MoF met 70 of these, selling UAH2.69bn of bonds at par value from the total volume of submitted bids of UAH4.07bn. Today, the MoF has to pay back UAH1.42bn, but total proceeds from the auction came to UAH2.64bn.

Proceeds were distributed between the 9-month bond with maturity in December, 2011 and the 2-year bond with maturity in April, 2011, at UAH1.06bn and 1.58bn, respectively.

A total of 35 bids were submitted for the 6-month bond yesterday, with yields ranging from .6.9% to 7.75%. The MoF met 33 bids and cut off its yield at 7.50%, decreasing the cut-off yield by 25bp compared with the auction two weeks ago. The weighted average yield of yesterday placement was 7.36%.

The number of bids submitted for the 2-year bond was 47, with yields ranging from 8.85% to 9.75%. The MoF decreased its cud-off yield by 20bp to 9.40%, and met 37 bids. Two weeks ago, bonds with maturity in December, 2012 were sold at 9.60%. There was a primary placement, with the coupon rate fixed at 9.24% as the weighted average yield of this placement.

As we expected, the 3-month and long-term bonds were not sold yesterday. The level of yields in the submitted bids was lower than two weeks ago, at 5.25 and 9.0%, which is 55bp and 25bp less than in the previous placement of these types of bonds, respectively.