MinFin raises rates for UAH-denominated local bonds

Ukraine’s Finance Ministry raised USD 10.3 mln and UAH
134.6 mln (a total of UAH 425.3 mln in the equivalent) at its weekly local bond
auction held on Sept. 11. It raised USD 12.6 mln and UAH 15.0 mln (a total of
UAH 372.8 mln in the equivalent) at the auction held last week.

The interest rates for UAH-denominated bonds increased
following the 0.5pp hike of key policy rate to
18% by the National Bank of Ukraine on Sept. 6. The government sold 3M, 6M and
12M bonds at a unified interest rate of 18.5% (vs. 18.0% a week ago). Around
80% of UAH auction receipts – UAH 110.5 mln – were brought in by the sale of 3M
bonds. Six-month bonds were sold for UAH 15.3 mln, while the sale of 12M bonds
raised UAH 8.8 mln.

Some market participants anticipated a higher increase
in interest rates. In particular, MinFin rejected six out of 14 bids for 3M
bonds, one out of eight bids for 6M bonds and one out for 3 bids for 12M bonds.
In addition, one bid for 3Y bonds at 17.25% was also left unsatisfied.

The interest rate for local Eurobonds remained
unchanged. The government sold 9M local Eurobonds for USD 4.1 mln (15 satisfied
bids) and 2Y local Eurobonds for USD 6.2 mln (10 satisfied bids) at the unified
interest rate of 5.95% – the same as last week. One bid for 9M local Eurobonds
and three bids for 2Y local Eurobonds with higher interest rates demanded were
left unsatisfied.

Evgeniya Akhtyrko: The rise in
interest rates for UAH-denominated bonds by 0.5pp failed to improve demand for
UAH-denominated debt. So far, the government is ignoring market demands for
higher interest rates. At the same time, the need for budget deficit financing
is likely to stay high, as the government appetite for public spending is
likely to grow through the year end during the current election campaign.

The situation with raising FCY-denominated local debt
is also difficult. As we wrote, government
needs in foreign currency are high this month because of scheduled payments of
USD 554 mln on international sovereign Eurobond coupons and redemptions of
local Eurobonds for USD 100 mln.

However, the USD receipts of the two September
auctions indicate that the government is not likely to cover its needs if the
market doesn’t improve. Hiking interest rates for local Eurobonds is an option,
but the market capacity to buy local Eurobonds might be still low despite
higher interest rates.