Ukraine raises UAH 4.4 bln from local bonds, lowers rates

Ukraine’s Finance Ministry raised UAH 4.4 bln from the
sale of its local bonds at its weekly bond auction on Dec. 10, after drawing UAH 3.4 bln and USD 53.9 mln at the auction last week.
The auction’s receipts came from the sale of 4Y, 3Y and 10M bonds.

Around 70% of auction’s receipts – UAH 3.0 bln – came
from the sale of 4Y bonds to 22 out of 57 bidders. The weighted average
interest rate dropped to 11.67% from 12.40% two weeks ago. The MinFin’s cut-off
rate declined to 11.70% from 12.64%.

In addition, eight out of 14 bidders were successful
in buying 3Y bonds for UAH 1.1 bln with a weighted average interest rate of
12.05% (vs. 13.07% for comparable bonds placed a month ago). On top of that,
MinFin satisfied three out of five bids for 1Y bonds for UAH 227 mln at 13.0%
(vs. 13.46% for the same bonds placed on Nov. 19).

Evgeniya Akhtyrko: Apparently,
MinFin was quite comfortable with slashing the interest rates for 4Y bonds by
almost 1pp, after seeing the incredible results of November consumer prices. Inflation cooled to 5.1% yoy,
reaching the National Bank’s mid-term target three quarters earlier than
projected. Despite the declining interest rates in recent months, demand for
Ukrainian long-term local bonds remains high, implying that investor confidence
has been solid.

Now the market is looking towards the NBU’s move
tomorrow on the key policy rate. A bold decision is in order amid slowing
inflation, coupled with interest rates on local bonds that are significantly
lower than the current rate of 15.5%. A slash of the key policy rate by 3pp
wouldn’t look extreme for the current economic situation.