Ukrainian Finance Ministry again raises 4-yr benchmark bond rate slightly, to 15%

MOSCOW. Aug 6 (Interfax) - The Ukrainian Finance Ministry on August 5 set the cut-off rate for the new benchmark government domestic bond issue maturing on June 27, 2029, which banks will be able to use to form some of their reserves, at 15% per annum, up from 14.84% per annum for the same issue two weeks ago.

Ukrainian media reported, quoting information on the Finance Ministry website, that UAH 10 billion of the bonds were offered at face value. Demand was UAH 21.64 billion, compared to UAH 40.27 billion at previous auctions.

Maximum bids rose from 15.4% to 15.5%, and minimum bids from 14.2% to 14.6%. Although the Finance Ministry sold all the bonds offered, their weighted average rate increased from 14.63% to 14.84% per annum. This is the second consecutive increase in rates on 4-year benchmark government bonds, while at the July 15 auction the cutoff rate was 14.79% and the weighted average rate was 4.31%.

Demand at other auctions for hryvnia bonds fell, and rates were unchanged: for 14-month bonds - 16.35%, 19-month - 17.1% and 38-month - 17.8% per annum. The Finance Ministry satisfied all bids, which fell to 42 in number, from 79 the week before.

This time, demand was highest for 38-month bonds at UAH 1.21 billion, up UAH 0.25 billion from the previous auction; while demand for 14-month securities fell from UAH 4.63 billion to UAH 0.37 billion, and for 19-month it fell from UAH 0.66 billion to UAH 0.37 billion.

Demand at an auction for 18-month dollar bonds increased to $412.9 million, from $216.9 million a week ago, although the offering was lowered from $250 million to $140 million. But this only enabled the Finance Ministry to lower the weighted average rate by 1 basis point to 4.16%, while the cutoff rate was unchanged at 4.25% per annum.

The Finance Ministry limited the number of auctions for government FX bonds due to significant financing from abroad in H1 2025 but then reconsidered its decision in the second half of July. According to an updated schedule for government bond placement on the ministry's website, in addition to three USD bond auctions this quarter, on July 29, August 19 and September 23, another three auctions were planned for August 5 and 26 and September 30.

As for euro-denominated bonds, two auctions are planned for the third quarter: one was held on July 8 and the other is due on September 9, while the previous schedule only included one auction on September 2.

Finance Minister Sergei Marchenko said early in 2025 that the ministry would try to stabilize borrowing on the domestic market to ensure the repayment of the previously issued debt, as this market's potential to finance the deficit was virtually exhausted.

However, the Verkhovna Rada last week approved government-proposed legislation to increase 2025 state budget expenditures by UAH 400.5 billion, of which UAH 250 billion is to be raised by increasing net borrowing on the domestic market. The volume of domestic government bonds to be placed will be increased by UAH 184.9 billion to UAH 764.1 billion while payments on them will be reduced by UAH 65.1 billion to UAH 496.9 billion.

A record UAH 638.4 billion was raised on domestic government bond market in 2024.