UAH sovereign debt auctions still end without placements

The Finance Ministry reported yesterday that it held three unscheduled auctions on Thursday-Friday (December 9-10) and on Monday (December, 13), attempting to place mid-term papers. In all of them, the government rejected all the bids, which came in at the following levels: 13%-13.6% for 1.5Y papers, and 13.5%-14.0% for 2Y bonds. Mykyta Mykhaylychenko: We still believe the government has sufficient liquidity for its needs through yearend, still counting on a tranche from the International Monetary Fund to come by end-2010 (as we expect it will). As the government has to repay local sovereign bonds with a face value of UAH 3.5 bln, it is willing to raise some spare resources if rates be attractive. As banking liquidity recovered in recent days (correspondent accounts went up from UAH 16 bln to almost UAH 21 bln over the last week), the government decided to hold more frequent auctions so it does not miss out on issuing bonds at rates, lower than bids in recent auctions. Should the government receive its next USD 1 bln IMF tranche and privatize Ukrtelecom, it should have enough liquidity to live through 1Q11. This may also support domestic banking liquidity and, hence, press yields downward somewhat at the beginning of the year (some short-term liquidity disruptions are quite possible, providing that Ukrtelecom’s buyer will have time until end-February to fully pay the government). The Finance Ministry held another auction yesterday and is due to report its results in the coming hours.