Local short-term bond rates drop 150 bps at weekly auction

Ukraine’s Finance Ministry raised UAH 2.0 bln its
weekly bond auction on June 16 after raising UAH 18 bln (in the equivalent) at the auction last week.
The UAH auction receipts came from the placement of 3M, 6M, 2Y and 3Y bonds.

The interest rates for 3M and 6M bonds dropped 150 bps
since the last auction. In particular, MinFin satisfied seven out 21 bids for
3M bonds at 7.5% (vs. 9.0% at the auction last week) for UAH 532 mln, as well
as eight out of 16 bids for 6M bonds at 8.0% (vs. 9.5% at the auction last
week) for UAH 483 mln.

In addition, seven out of eight bidders were
successful in purchasing 2Y bonds for UAH 729 mln with a weighted average
interest rate of 10.57%. The rest of auction receipts – UAH 216 mln – came from
the sale of 3Y bonds to six bidders with a weighted average interest rate of
10.76%.

Evgeniya Akhtyrko: As we
expected, the the key policy rate cut to 6%
from 8% last week resulted in interest rates for local bonds dropping at the
primary market. Having secured IMF and other international financing, the
government now is less dependent on the receipts from the placements of
domestic bonds, and it can afford to be bearish on interest rates.

The placement of 2Y and 3Y bonds was not in MinFin’s
initial plan for this auction. And it was encouraging to see that long-term
bonds found demand at the market, as this indicates a lower risk assessment by
players and less uncertainty.

The current MinFin’s plan on bond placements
supposes weekly placements of 3M, 6M, 18M, 2Y and 3Y bonds through the end of
2Q20. The government is likely to push the interest rates down for the bonds
with longer term of maturity.