Ukraine’s Ministry of Finance continues to follow the NBU in interest rate increases. After receiving large demand, the MoF agreed to accept less aggressive bids and increase bond yields by 50bp, only half of the NBU’s key rate increase last week.
16-month bills received over UAH2bn of bids, including only UAH81m in non-competitive demand. Out of 30 bids, the MoF accepted 24, with interest rates up to 16.35%, 50bp above last week’s cut-off rate, borrowing just UAH360m. The MoF rejected another six bids, as they had interest rates up to 16.85%.
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Demand for 2.3-year paper was similar. The MoF received 36 bids amounting to UAH3.8bn, with interest rates ranging from 16.9% to 17.95%. The ministry rejected five of the most expensive bids and set the cut-off rate at 17.45%.
The decline in rates for reserve note slowed. An increase in the NBU key policy rate induced banks to increase yields in their bids: the lowest rate rose by 90 bp and the highest rate by 50 bp. Due to competition and higher bid rates, the cut-off rate slid by only 10 bp, and the weighted-average rate rose by only 9 bp to 15.89% and 15.61%, respectively.
The NBU’s hike in the key policy rate and announcement of an increase in the three-month CDs rate since April induced the MoF to follow the NBU in rate increases, but slowly.
This MoF decision looks understandable for the bond market, as it can be final. The MoF almost rolled all debt redemptions YTD; yesterday, it could complete the rollover by accepting all bids.
The MoF will redeem another UAH24bn of bonds in March, and to meet 100% rollover, the MoF should borrow another UAH26bn this month. This is not an easy task without reserve bonds, as yesterday’s demand shows that an increase in rates will not allow the MoF to borrow enough funds to roll all redemptions without reserve bonds.
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