Government rejects all bids at UAH bond primary auction

Yesterday the Finance Ministry held a scheduled UAH bond auction, but rejected all the bids and did not attract any fresh resources, although rates went down somewhat after some stabilization on the interbank money market. The largest volume of bids (UAH 200 mln) was for 2.2Y papers and came at 12.5%-13% YTM levels, down from 14.9% for the same papers two weeks ago. Much smaller bid volumes (UAH 10 mln) came for 1Y papers at 11%-11.5% vs. 10%-12.6% for similar papers two weeks ago, while bids for 5M papers (for up to UAH 10 mln) came in at 9% YTM, down from 10.5%-11% two weeks ago. Mykyta Mykhaylychenko: After the recent placement of USD 500 mln in 1Y Eurobonds and expected USD 1 bln IMF tranche disbursement by yearend, the government should have sufficient resources to live through the end of this year and the beginning of the next (during 1Q11, the Finance Ministry is scheduled to repay some UAH 14.4 bln (USD 1.8 bln) in maturing UAH and USD public debt). Our previous analysis assumed Ukrtelecom’s privatization for UAH 10.5-11 bln would cover most of 1Q11 needs. Should privatization fails or be delayed (only one bidder has applied for the December 28 auction), the government might need to tap UAH, USD markets more aggressively in the last weeks of 2010 and during January-March 2011, pushing interest rates up.