Ukraine MinFin raises rates for local bond placements

Ukraine’s Finance Ministry placed on Dec. 12 UAH 3.18
bln in local bonds maturing in late February 2018 at a yield of 16.27%, which
was 0.32pp higher than those placed a week before. It also raised UAH 0.33 bln
from the placement of six-month bonds at a 15.85% yield and UAH 0.35 bln from
five-year bonds placed at a yield of 15.74%.

Alexander Paraschiy: As Ukraine’s
central budget is turning to deficit after enjoying surplus for most of the
year (by the end of October central budget had UAH 1.4 bln in surprlus, while
spending have been mounting), MinFin has had to become more active in
borrowings, even though interest rates at the local market are not favorable.
In particular, short-term local debt has become more expensive since late
October, when the central bank (ther NBU) raised its key rate by 1.0pp to
13.5%, as well as started issuing 3-month certificates of deposit (for a total
issue amount limited to UAH 0.3 bln per week) at rates that peaked at 15.25% in
early November. On the other hand, the NBU has been gradually reducing its CD
rates since then. In particular, at the Dec. 13 auction it sold 3M CDs at 14.5%,
down from 14.89% a week before.

Given this trend, it seems like the higher rates for
MinFin’s placement could only be explained by an unexpectedly large amount of
the government’s borrowing in local currency (total UAH 3.9 bln, up from UAH
0.5 bln raised last week). Another possible explanation for the higher costs of
MinFin’s borrowing this week could be the expectations of local bank (who
purchased new bonds) of a further hike of the NBU’s key rate. The central bank
is going to be consider the revision today.