MinFin raises UAH 7 bln at weekly bond auction

Ukraine’s Finance Ministry raised UAH 5.7 bln and USD
53 mln (collectively, the equivalent of UAH 7.2 bln) at its weekly bond auction
on Oct. 20, compared to UAH 6.0 bln at the auction last week.
The auction receipts came from the placement of 3M and 1Y UAH-denominated bonds
and 1Y USD-denominated bonds.

More than half of all auction receipts – UAH 3.9 bln –
came from the sale of 3M bonds to one out of two bidders at 7.3% (vs. 7.19% for
these bonds two weeks ago). In addition, MinFin satisfied nine out of ten bids
for 1Y bonds for UAH 1.7 bln with a weighted average interest rate of 10.22%
(vs. 10.0% for these bonds last week).

MinFin satisfied all 46 bids for 1Y USD-denominated
bonds for USD 53 mln at 3.5%.

Evgeniya Akhtyrko: It looks
like the sale of 1Y UAH-denominated bonds for UAH 1.7 bln reflects the current
capacity of local market players to absorb local debt, as the single buyer of
3M bonds for UAH 3.9 bln was likely the state-owned bank. And this market
capacity is far from current government needs to finance budget outlays amid
the ballooned budget deficit.

We estimate the government needs to raise at least UAH
10 bln per week at the local debt market in order to cover swelled government
outlays as earmarked by the state budget, which was last amended in March amid
the pandemic panic. That said, a big chunk of planned budget outlays is likely
not to be financed through the rest of the year.

Next week, MinFin plans to offer 6M, 1Y, 2Y and 4Y
UAH-denominated bonds. We don’t expect to see a noticeable increase in auction
receipts, unless MinFin offers much higher rates.