Govt bond sales at auctions in Ukraine fall to UAH 13.5 bln, FX bonds sales to $50 mln as rate lowered

MOSCOW. Oct 16 (Interfax) - The Ukrainian Finance Ministry, which boosted local-currency bond offerings from four to six issues at the beginning of October, again reduced them to four at auctions on Tuesday without offering reserve securities, which resulted in sales falling to UAH 13.51 billion, from UAH 24.08 billion a week earlier.

Ukrainian media reported, quoting the Finance Ministry's website, that rates were unchanged: 12 month bonds - 14.65%, 19M - 15.25%, 31M - 16.25% and 40M - 16.8%.

The auctions received 51 bids, down from 117 a week ago, with demand down from UAH 74.62 billion to UAH 35.96 billion, most of it for 19M and 31M bonds at more than UAH 15 billion at each auction, way above the UAH 5 billion offered at all auctions. But even though demand was three times the offer, the resolve of buyers prevented the Finance Ministry from lowering the rate.

Demand for the longest bonds was a fraction of the offer at UAH 0.4 billion, while for the shortest bonds it exceeded it at UAH 5.5 billion. However, the ministry rejected a large bid for UAH 3 billion, refusing to raise the rate to 14.8% per annum.

According to the updated schedule, reserve or benchmark government bonds, which banks can use to form required reserves, are also excluded from the next two October auctions.

"The strong interest of banks in such bonds as opposed to regular bonds creates risks that banks will quickly use their limit for forming required reserves with bonds and cut their activity in the primary market to a minimum. This could make it difficult for the Finance Ministry to achieve its Q4 2024 net borrowing target of UAH 200 billion," the ICU company said, commenting on the ministry's change of tactics.

Its analysts said it looked like the ministry was hoping that by not placing reserve bonds it would be able to increase borrowing with regular government bonds.

"This approach could undergo changes in the near future if demand for regular bonds remains low," ICU said.

As for dollar bonds, $300 million of which were redeemed last Thursday, demand for one-year government bonds at the auction this Tuesday was not that much lower than a week ago at $181.2 million versus $203.5 million, and the number of bids even increased from 44 to 78.

The appearance among them of bids at 4.5% per annum, probably caused by a reduction in the offering at the auction from $150 million to $50 million, enabled the Finance Ministry to lower the cutoff rate to 4.62% from the 4.66% that had held since the beginning of December last year, and the weighted average even decreased to 4.6%.