Bond Market Insight-Government bond auction results: Auction without demand once again

Yesterday\'s extraordinary primary auction announcement, after the auction on Tuesday, did not collect any bids, despite the MoF\'s expectations for possible participants and investors for USD-indexed bonds. But, it guessed wrong, and yesterday\'s auction was also canceled.

The MoF offered USD-indexed bonds to the market with the same 3-year, 5-year, and 10-year maturities as on Tuesday and the same dates of interest and principal repayments, though the market showed no interest in the bonds.

In spite of the significantly increase in banks\' correspondent accounts with the NBU, to UAH17.16bn, today this could significantly fall, by approximately one-third, after the funds were exchanged in US dollars for Naftogaz\'s payment to Gazprom for natural gas imported in October. In addition, part of the funds from correspondent accounts with the NBU could be spent on REPO agreements with Naftogaz, using the recently received UAH4.0bn of local-currency bonds for a capital increase.

Under these conditions, the MoF could use the NBU\'s support of the banking system to create liquidity for new bonds, if the MoF has a paramount necessity.

Taking into the account the current trend of announcements for extraordinary auctions, the MoF could announce one once more for Monday, or additionally for next Tuesday, to offer USD-indexed bonds.

According to the auctions schedule, the MoF has to announce the four-bond offering for the next Tuesday: two zero-coupon bonds, with 3-month and 9-month maturities, a 2-year, mid-term, coupon-bearing bond, and a 5-year, long-term bond with a put-option. But, we do not expect demand for the ordinary bonds, and do not expect significant demand for the USD-indexed bonds, without the NBU\'s support.