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At yesterday's primary auction, yields on one-year bills stopped declining, and yields on three-year securities decreased by only a few basis points.
Demand for one-year UAH paper was less than UAH2bn for the first time this year, and, accordingly, was less than supply. Yields in bids ranged from 15.0% to 15.2%, and total demand volume was only UAH1.8bn. The MoF refused to accept only one of 33 bids received, for UAH0.5bn at a rate of 15.2%. Therefore, the cut-off rate remained 15.15%, and the weighted average yield increased by 1bp to 15.12%.
Note: [1] payment frequency abbreviations: M - monthly, Qtly - quarterly, SA - semi-annually, @Mty - at maturity date; [2] proceeds and volumes for the USD-denominated bonds are calculated based on the previous day's exchange rate 43.91/USD, 50.95/EUR; [3] yields on coupon-bearing bonds are effective yields to maturity. Sources: Ministry of Finance of Ukraine, Bloomberg, ICU.
At the same time, demand for three-year notes is still significantly higher than supply, despite more than halving from the auction two weeks ago from almost UAH18bn to UAH7bn. Yields in demand were in the 16-16.2% range, but a 3.5 bid-to-cover ratio still allowed the MoF to lower interest rates slightly. The cut-off rate decreased by 5bp to 16.15%, and the weighted average rate slid only 3bp to 16.13%.
Thus, since the beginning of the year, the yield on one-year securities has decreased by 123bp, and on three-year notes by 167 bp.
Currently, the difference between the minimum and maximum satisfied rates for both instruments has decreased to 15 bp, and it is likely that any further decrease would be very insignificant. That would be especially so in conditions of a significant decrease in bond demand and increased expectations that the NBU's key policy rate will not change soon.
Appendix: Yields-to-maturity, repayments
