Ukraine places 5Y local bonds at 16%, lowers rates for short bonds

Ukraine’s Finance Ministry raised UAH 11.2 bln and USD
82 mln (a total of UAH 13.4 bln in the equivalent) at its weekly bond auction
on Apr. 23 after raising a total of UAH 13.5 bln (in the equivalent) at the auction last week. MinFin
placed six types of UAH-denominated bonds with maturity ranging from four
months to five years, and 8M and 2Y USD-denominated bonds. Like in the previous
auction, the government also placed USD-denominated puttable bond maturing in
August 2020.

Around quarter of auction’s receipts – UAH 2.7 bln –
came from the sale of 5Y bonds to two out of three bidders at 16.0%. The
previous placement of 5Y bonds took place on Aug. 28, 2018, when three bidders
bought them at 16.0% for UAH 10.3 bln. In addition, the government satisfied 13
bids for 2Y bonds for UAH 2.8 bln at 17.98%. Meanwhile, the highest auction’s
UAH receipts – UAH 3.1 bln – came from the sale of 6M bonds that were sold to
17 bidders with a weighted average interest rate of 18.99%.

MinFin lowered the interest rate on 4M bonds by
setting the cut-off rate at 19.0% (vs. 19.5% last week). As a result, the bonds
with the shortest term of maturity were sold to nine out of 25 bidders for UAH
1.4 bln with a weighted average rate of 18.97%. The rest of UAH auction
receipts came from the sale of 1Y bonds to six bidders (UAH 0.47 bln at 18.5%)
and 18M bonds to seven bidders (UAH 0.81 bln at 18.25%).

The lion’s share of auction’s USD receipts – USD 73.5
mln – came from the sale of puttable bonds at 3.85%. Recall, the holder of this
bond (which pays coupons semi-annually) has the right to put it any time with
20 days prior notice. In which case, the holder will receive the latest accrued
coupon at a 0.5% rate.

The rest of USD auction receipts came from the sale of
8M bonds to 18 bidders for USD 5.6 mln at 7.25% and the sale of 2Y bonds to
nine bidders for USD 3.0 mln at 7.75%.

Evgeniya Akhtyrko: The
increased interest rates for bonds with longer maturity, as well as lowered
rates for bonds with the shortest maturity – likely reflect the market
expectations that the National Bank of Ukraine will cut the key policy rate
from the current 18% at tomorrow’s meeting. In our view, the rate cut is
unlikely this time.

At the same time, the activity of investors at the
local bond market remains high. This means that the expected changes in the political leadership
in the country haven’t yet had a negative impact on the market.

Meanwhile, the market’s capacity for satisfying
government needs in foreign currency inflow is low. As with the previous auction,
the sale of puttable Eurobonds is used as a less expensive alternative for 1M
local Eurobonds that were previously placed at 6.25%.