Government bond auction results: Low demand reflects market

At yesterday\'s pre-announced primary auction, the MOF offered a 3-year USD-indexed bond in addition to the usual offerings of securities. All except for the local currency bonds attracted bids, but only to the extent that the purchased securities could be included in reserves and/or calculations of banks\' FX positions, meaning that demand was limited and scarce.

Only four bids were submitted yesterday, as follows: one bid was submitted for US$2.23m of the USD-denominated bond at an interest rate of 9.45%, while the other three bids were for a total of UAH600.0m for the USD-indexed bond at an interest rate of 9.30%. The MoF accepted all four bids to receive UAH618.04m at the market exchange rate, which will be more than sufficient to cover today\'s UAH190.44m in debt interest repayments.

Demand reflected the true market conditions, as bids were submitted only by market players that could include these bonds in their reserves or/and FX position. There was no demand for local currency bonds.

Next week, the MoF will offer its standard three local currency bonds in addition to a 1.4-year FX-denominated bond (most likely in US dollars). Demand is expected the very similar toy esterday, with only the USD-denominated bond attracting bids. Although other bonds could receive \"friendly\" bids, the MoF will likely attempt to accept lower interest rates for USD-denominated bonds in light of yesterday\'s successful Eurobond placement.
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