Bond Market Insight-Government bond auction results: MoF accepts higher rates

Yesterday, the MoF held an unscheduled auction offering, as on Tuesday, USD-indexed bonds, and collected quite a healthy demand, as for the month of November, at UAH650.0m, combined from four bids. All the bids were submitted for the 3-year bond with maturity on 5 November, 2014, and were accepted by the MoF.

The most striking characteristic of yesterday\'s auction, which could be the first occurrence of this sort since the beginning of June, 2011 was that the MoF moved to the market\'s side, in that yesterday, the MoF significantly increased the interest rate, accepting the highest rate of 8.5% from bids submitted. As a result, the weighted average rate rose to 8.38%. In addition, the lowest rate among submitted bids also rose yesterday. During the last two months, this rate has been stable, at 8.22%, but yesterday, it rose to 8.25%, the level which the MoF accepted a week ago.

As the result of yesterday\'s auction, the MoF received budget proceeds at a total volume of UAH648.54m, but this volume evidently did not satisfy its expectations, so the MoF announced a new, unscheduled auction for today, offering the same bonds as yesterday.

It appears that the MoF is not going to receive significant budget proceeds in November, and is also trying to make leeway from this summer\'s doldrums. At the same time, expectations for a UAH devaluation formed a certain demand for USD-indexed bonds. In addition, buying of the new bonds was likely supported by the NBU through its purchasing of ordinary bonds from banks\' portfolios refinancing and using the bonds as the collateral.

Taking into account the start of this new trend formed yesterday, today\'s auction could provide the MoF with some proceeds, but we do not expect significant demand. However, the interest rates on submitted bids could increase.