Government bond auction results: Majority of demand for zero-coupon bonds

The first primary auction of the second quarter resulted in no surprises in interest rate fluctuations or volumes of bonds sold. Demand was seen for three of the four bonds offered yesterday, which were mostly satisfied at the interest rates that were the same as in March, or close to these levels. Lack of demand was only evident for the 2-year, ordinary bond.

The largest demand was seen yesterday for the 11-month, zero-coupon bond, represented by seven bids amounting to UAH646.00m, with interest rates in the range of 14.25-14.50%. Because the interest rates were not higher than the cut-off rate at auctions held in March with similar offerings, this demand was fully satisfied, and the weighted average interest rate was defined as 14.49%, or only 1bp lower than the cut-off rate.

Additionally sold at yesterday\'s auction were both USD-denominated bonds, which together collected US$30.70m, or UAH892.69m of demand at the market exchange rate, including US$9.80m for the 3-year bond. Of the four bids submitted for the 1.7-year, USD-denominated bond, only one bid amounting to US$10.0m, with an interest rate of 9.50%, was rejected, while the other three bids were satisfied at the usual cut-off rate of 9.30%. Demand for the 3-year, USD-denominated bond was fully satisfied, at a rate of 9.45%, the same rate as the last time this bond was sold, in mid-February.

As a result of the auction, the MoF collected UAH740.89m of budget proceeds, including UAH170.94m, or US$21.27m, from the USD-denominated bonds. These budget proceeds will only partially cover today\'s debt principal and interest repayments, amounting to UAH1.02bn, but this repayment is not critical for the MoF after the tax payments that were received last week.

The next primary auction is scheduled for Tuesday next week, at which the MoF will replace the 3-year, USD-denominated bond with the USD-indexed bond with the same 3-year maturity. The MoF will also likely offer a new, 12-month, zero-coupon bond next week. Taking into account the total volume of debt repayments scheduled for the next week, at about UAH1.75bn, demand could slightly increase, but interest rates will likely remain steady.
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