Ukraine raises UAH 11.4 bln from local bonds, slashes interest rates

Ukraine’s Finance Ministry raised EUR 0.2 bln and UAH
6.2 bln (UAH 11.4 bln in the equivalent) at its weekly bond auction on Dec. 17
after drawing UAH 4.4 bln at the auction last week.
The auction receipts came from the placement of 6M EUR-denominated bonds, as
well as 4Y, 2Y, 10M and 2M UAH-denominated bonds.

MinFin satisfied 28 out of 37 bids for EUR-denominated
bonds for EUR 198 mln. The weighted average interest rate for 6M
EUR-denominated bonds dropped to 2.22% (from 4.60% six months ago), which is a
historic low for EUR-denominated local bonds placed by MinFin.

The largest portion of UAH auction receipts came from
the sale of 4Y bonds to 24 out of 29 bidders for UAH 4.1 bln with a weighted
average interest rate of 10.90% (vs. 12.38% for 4Y bonds two weeks ago). In
addition, MinFin also attracted UAH 1.0 bln from the sale of 2Y bonds to six
out of seven bidders with a weighted average interest rate of 11.10% (vs.
12.01% for the same bonds a week ago).

On top of that, five out of seven bidders were
successful in buying 10M bonds for UAH 539 mln with a weighted average interest
rate of 11.42% (vs. 13.00% for the same bonds last week). Finally, MinFin
satisfied four out of five bids for 2M bonds for UAH 530 mln with a weighted
average interest rate of 11.78% (vs. 13.06% for the same bonds two weeks ago).

Evgeniya Akhtyrko: The
accelerated decline of interest rates for local bonds at the primary market was
expected given last week’s decision of the National Bank to cut the key policy rate by 2pp to 13.5%,
which served to reinforce demand for local bonds. Despite a drop in rates by
100-150 bps, the demand for UAH-denominated bonds even increased.

Remarkably, the demand for 6M and 1Y bonds also
jumped, enabling a significant cut of interest rates for short-term bonds as
well. The yield curve for UAH-denominated local bonds remains inverted, but now
the difference in interest rates between short- and long-term bonds has 
been diminishing.

As for local Eurobonds, MinFin now was more successful
in placing EUR-denominated bonds compared with its placement of USD-denominated
bonds two weeks ago, when receipts totaled USD 53.9 mln.
Apparently, these foreign currency receipts should help to refinance the
outlays related to the redemption of local Eurobonds for USD 160 mln on Dec.
12.

The placement of short-term local Eurobonds at such
low interest rates is a positive development given the continued appreciation
of the national currency and abundant supply of foreign currency at the market.