Bond Market Insight: Military Bonds Saw Huge Demand For Two Months

Once more, the primary auction received huge demand with oversubscription for all offered bonds. Therefore, the MoF borrowed significant funds from each auction for the third month.

Military bonds saw huge demand for two months, but without significant movement in interest rates, except for refreshing offerings, as last week. Therefore, interest rates for all three offered military bonds did not see important movements, while for reserve notes, interest rates continued to fall.

Fourteen-month and 2.4-year military bills received more than UAH10bn of demand each, but without any chance to revise interest rates. Cut-off rates remain unchanged at 15.1% and 16.2%, while weighted average rates rose by 1bp and 2bp to 15.1% and 16.19%, respectively.

At the same time, demand for three-year paper was more diverse. The lowest bid rate was 15.25%, 115bp lower than last week and 125bp below the maximum bid rate. Probably, there were other bids with rates below the cut-off rate, as the weighted average rate slid by 4bp to 16.42%; the cut-off rate remained unchanged at 16.5%.

The highest competition remains for reserve notes, as the NBU added this paper to the list of reserve bonds last Friday. Therefore, banks submitted many bids, causing oversubscription by 5x. There were likely a few bids from each participant, but in a tighter range than last week. The lowest rate increased by 9bp to 14.18%, and the highest rate fell by 75bp to 15.5%. However, most bids came in toward the low end, as the MoF accepted 30 bids within the UAH8bn cap and decreased the cut-off rate by 48bp to 15% and the weighted average rate by 63bp to 14.59%, which is 41bp below the cut-off rate.

If demand remains significant in the following two weeks, the MoF will complete the issuance of all three military bonds this year, reaching UAH20bn outstanding for each. So, next year, we will start with a new combination of military bonds. At the same time, the MoF may offer new securities next week, which may become reserve bonds next year.