Bond Market Insight-Government bond auction results: MoF sells bonds at low rates

Rejecting the majority of demand in yesterday\'s auction, the MoF sold only the 3-year bond to investors who submitted bids with the same rates as in June, 2011.

By the end of the auction, the MoF ended up collecting 21 bids at a total volume of UAH1.26bn, or UAH500m more than a week ago, but only two bids were accepted and were sold at only one-fifth of the total volume of demand.

As expected, the 3-year bond collected the largest demand yesterday, at a total volume of UAH523.02m, comprised from 11 bids with rates ranging from 10.10% to 11.40%. But, the MoF accepted only two of them, with the lowest rate at 10.10%, at a total volume of UAH285.0m. The large demand for the two bids appears to be from the Deposit Guarantee Fund, which usually invests its assets into mid-term bonds.

The lowest rate in the bids submitted for the 6-month bond was at 6.5%, which is 30bp less than for the NBU\'s 3-month CDs, and the highest rate for the 6-month bond was 8.5%, or 50bp less than in June, 2011. But, despite the low rates, all four bids, at a total volume of UAH381.2m, were rejected.

The smallest demand was submitted on the reopening of the bond with maturity on 6 June, 2012, which collected four bids at a total volume of UAH145.0m. But, the lowest and the highest rates in submitted bids increased by 80bp and 25bp to 8.75% and 9.75%, respectively.

The 5-year bond, offered by the MoF once per month, saw normal demand, at a total volume of UAH210.0m in two bids. The 12.5% rate on the submitted bids was not acceptable to the MoF, and these bids were rejected, too.

Next week, the MoF has to pay UAH152.86m on interest payments, and we do not expect large borrowings, as likely, only a few bids with the lowest rates could be accepted, mostly on the 2-year bond placement, or all bids could be rejected.