Government attracts UAH 1.2 bln at two unscheduled local bond auctions

On Friday and Monday, the Finance Ministry held two UAH debt auctions and attracted a total of UAH 1.2 bln. On Friday 1.5Y bonds were placed at 10% YTM (UAH 600 mln), while yesterday 2Y bonds were sold at 10.1% (also UAH 600 mln). Both times only one bid was satisfied, so actual market rates are apparently somewhat higher (for instance, the only other bid was submitted at 13.5% for 2Y papers). The government has attracted UAH 1.6 bln so far in December on top of the USD 1.5 bln IMF tranche received last week (USD 1 bln or UAH 7.9 bln went directly to the government). Mykyta Mykhaylychenko: We see the government as now trying to pile up cash to both fund seasonally high end-of-year budget outlays and have enough funds to repay debt maturing at the beginning of 2011 (UAH 3.5 bln in January, UAH 2.2 bln in February, UAH 8.8 bln in March). At the same time, the NBU is trying not to let the volume of outstanding CDs to commercial banks fall below UAH 8 bln. In such circumstances, interbank money market rates have stayed high: 1d at above 4%, 1m – above 9%. The system will get a liquidity infusion in the coming weeks from both Finance Ministry budget outlays and public debt redemption. However, we do not see yields going down as the central bank might continue sterilizing excessive liquidity to keep local forex in order, while government demand for funds will continue pushing rates up (Ukrtelecom’s privatization might temporary relieve the government’s pressure on interest rates although timing is unclear now). Today the government is scheduled to hold another UAH debt auction.