Bond Market Insight-Government bond auction results: the MoF cancels the auction on no demand

Despite increasing the cut-off rate on the 3-year USD-indexed bond, the MoF received no bids for the second consecutive week. Perhaps the MoF\'s surprising move last week of not announcing additional auctions on Thursday and Friday, in an effort to create additional demand for yesterday\'s auction, was unwise.

We expected this to happen not only because of this week\'s scheduled tax payments, but also because of repeated, and possibly desperate, announcements from authorities about maintaining the value of the UAH/USD to the extent that they frightened investors over the imminence of a UAH devaluation, and possibly to create further demand for USD-indexed bonds.

Currently, the government has sufficient revenues from last week\'s quarterly tax payments and today\'s monthly payments to fund the UAH138.2m due today and UAH229.5 next week.

Moreover, as the US$2.0bn VTB loan will be repackaged into a long-term sovereign bond offering, according to the interview with PM Azarov last week, repayment will be postponed for at least one year, leaving additional FX reserves for other expenditures.