Ukraine lowers rates on local bonds

Ukraine’s Finance Ministry raised UAH 6.5 bln and USD
166 mln (a total of UAH 10.9 bln in the equivalent) at its weekly bond auction
on May 7 after raising a total of UAH 13.4 bln (in the equivalent) at the
previous auction on Apr. 23. MinFin placed six types of UAH-denominated bonds
with maturity ranging from four months to five years, and 18M USD-denominated
bonds. The government also placed USD-denominated puttable bonds maturing in
August 2020.

The interest rate on UAH-denominated bonds declined
following the central bank’s decision to lower key policy rate by 0.5pp
to 17.5% starting Apr. 26.

The MinFin lowered the cut-off rate for 4M, 6M to
18.5% from 19.0%. The 4M bonds were sold to 25 out 43 bidders for UAH 1.4 bln,
while the weighted average interest rate for 4M bonds decreased to 18.33% from
18.97% at the previous auction. Six-month bonds were sold to 20 out of 22
bidders for UAH 1.4 bln at a weighted interest rate of 18.41% (vs. 18.99% at
the previous auction).

The government satisfied all 15 bids for 1Y bonds for
UAH 1.2 bln at a weighted average interest rate of 18.33%. The receipts from
the sale of 18M bonds amounted to USD 0.3 bln, with their weighted average
interest rate decreasing to 17.99% from 18.25% at the latest auction. Two-year
bonds were sold to 12 out of 14 bidders for UAH 1.3 bln, with their weighted
average interest rate dropping to 17.75% from 17.98% at the latest auction. In
addition, three bidders bought 5Y bonds for UAH 1 bln at 16%.

The lion’s share of the auction’s USD receipts – USD
157.4 mln – came from the sale of puttable bonds to three bidders at 3.85%. The
rest of the USD auction receipts came from the sale of 18M bonds to 18 bidders
for USD 8.3 mln at 7.25%.

Evgeniya Akhtyrko: The MinFin’s
decision to lower interest rates was logical after the NBU cut its key policy
rate. We expect the demand for UAH-denominated bonds will remain high as yields
will still significantly exceed the current inflation rate.
In addition, investing in UAH-denominated bonds looks like a very lucrative
opportunity for non-residents, given the hryvnia’s ongoing stability.

Meanwhile, the situation with local Eurobonds looks worrisome.
The government is satisfying its foreign currency needs by placing puttable
Eurobonds, which in fact are surrogates for 1M local Eurobonds. Apparently, the
USD-denominated bonds are currently not affordable for market participants.