UAH sovereign debt primary auction: volumes up, yields are slightly down

Government raised UAH 1.9 bln (USD 238 mln) at a scheduled primary UAH debt auction yesterday, up from UAH 0.7 bln a week before. Although overall bids volume declined insignificantly (by 8.2% w-o-w, to UAH 2.5 bln), lower bid yields allowed the Finance Ministry to satisfy more of them. Specifically, bids range for 6M bonds was at 6.5%-7% (vs. 6.75%-8.75% a week before), for 9M – 7.5%-9% (7.75%-10.25% for 8M last week). 2Y papers average yield was at 9.9% yesterday (almost unchanged from 10% a week ago). As the government now has sufficient cash position to cover all its needs through 1Q11, it is trying to use favorable market conditions to build up liquidity cushion for the rest of 2011. We see government’s sufficient cash position coupled with abundant local banking system liquidity will allow the Finance Ministry to keep its borrowing costs low in the weeks ahead