Government bond auction results: 3-month bonds sold at a 13.35% yield

Yesterday\'s auction results were quite as expected, with more activity in terms of number of bids and volume of demand than last Thursday\'s auction, and a bit more active than last Tuesday\'s auction. Demand was concentrated on the 3-month bond, and interest rates on satisfied bids were not very different from the rates accepted by the MoF last Tuesday.

In total, the Mof collected 18 bids for six bonds out of seven offered: (1) 3-month, 6-month and 12-month bonds collected five bids each; (2) the 2-year ordinary bond, 1.5 USD-indexed bonds, and 3-year, USD-denominated bond received only one bid each, while the 3-year, USD-indexed bond did not receive any bids. The total volume of submitted demand was UAH486.35m in UAH-denominated bonds and US$5.0m in USD-denominated.

The MoF satisfied only part of the demand seen, and accepted three bids submitted for the 3-month bond at a total volume of UAH170.0m, with rates ranging between 13.25% and 13.50%, rejecting bids with interest rates higher than the cut-off rate of 13.5%, the same level as last Tuesday. But, the weighted-average rate rose by 96bp, to 13.35%, compared with 12.39% a week ago.

The MoF also rejected the more aggressive bids submitted for other bonds, of 20.0% for the 2-year ordinary bond and 10.0% for the USD-denominated bond, or 40bp higher than last Tuesday. Thus, the MoF\'s decision could be a signal to the market that the MoF does not need large volumes of funds─which will tend to make the MoF increase its cut-off rate─and that the Ministry will not accept small bids with high or speculative interest rates.

The two auction to be held this Thursday and Tuesday of next week will be less active than yesterday\'s auction, and will collect moderate demand, in our view, as the end of month is approaching, and growing expectations that banking sector liquidity will likely decrease after corporate tax, VAT, and other tax payments next Monday.
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