Finance Ministry Sells $17m of Local Bonds.

The Finance Ministry raised UAH 85m at yesterday’s auction of local bonds, including UAH 80m of 3-year paper with 9.4% yield and UAH 5m of 2-year paper with 9% yield. Oleksandr Klymchuk: The ministry’s auctions are beginning to attract some interest, but the amount was still modest, as the ministry refuses to raise yields. The money raised from auctions since they were renewed earlier this month amounts to only 2.4% of the amount planned for 2006. In our view, there is little hope for the ministry to attract local investors before the end of the year, as the yields are below expected inflation. Thus, whether the government is issuing local or foreign debt, it is relying on foreign demand. For now non-residents show little interest in local debt, but if the hryvnya’s current strengthening trend continues, they will become active players. Balance of payments data for 2Q06 showed that the current account deficit last quarter narrowed to nearly zero. Support from fast export growth and substantial FDI inflows means there is no threat of devaluation in the short-term. Moreover, during the last 4 four weeks (20 trading sessions) the National Bank intervened on the FX market 10 times to prevent hryvnya revaluation and increased its FX reserves from $17.2 bn at the end of March to recently surpass $19 bln.