ICU Bond Market Insight: 23 November 2022
MoF rejects aggressive demand
At the auction on Nov. 22, the Ministry of Finance rejected 80% of demand by refusing to raise interest rates on most bonds. As a result, they attracted only UAH1.2bn (US$32m).
Most of all, auction participants wanted to receive higher rates for military bills. For the four-month military paper, the largest bid was for UAH3.2bn (US$93m) and required a rate increase of 100bp to 15%, but the Ministry of Finance decided that this was too big a step after last week’s rate increase by 50bp. The largest bid for 10-month military bills amounted to UAH2bn (US$54m) or to 99% of demand for this paper and required a rate hike from 14% to 18%. So, in the end, MoF rejected these two bids, although they could have brought UAH5bn (US$137m) to the budget.
Demand for ordinary (non-military) bonds was less aggressive. For 15-month paper, only one small bid required a rate increase of 50bp, but the amount in it was UAH0.9m (US$0.02m) (par value). Therefore, the cut-off rate remained unchanged at 18.5%.
The only security for which demand was unanimous was two-year ordinary bills. All demand was at the rate of 19.25%, which is 75bp higher than where they were sold two weeks ago. Demand was slightly above UAH1bn (US$27m) (par value) and brought UAH918m (US$25m) to the budget.
Thus, the MoF continued to raise rates on ordinary bills, but refused to meet the aggressive demand for military bonds despite the large volume of such bids. Perhaps the need for a sharp increase in rates was the reason for such a decision by the MoF. Still, these bids are a very important indicator for further demand for military government bonds on the primary market.
RESEARCH TEAM: Taras Kotovych
See the full report here.
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