No demand for new local currency bonds

Обзор облигаций 04.03.2015 Yesterday, the MoF offered only one local currency bond with a 2-year maturity which successfully raised a total of UAH42.50m earlier this year. Most likely because of the recently adopted new NBU regulations, the bonds attracted no market demand. Although these bonds previously sold at 16.70%, the NBU increased its interest rate to 30%, nearly double this bond's rate. Also, as the NBU will strictly limit its bond portfolio to adhere to the IMF agreements, domestic QE is essentially cut off from providing primary bond market support. In addition, the NBU increased bank reserve requirements, which increases demand more for bonds in the secondary market than in the primary market. As the primary market will depend on MoF needs for low interest rates to decrease its debt servicing cost, we anticipate a large spread between the market cost of funds and interest rates at primary auctions. However, as the MoF has minimal local currency debt repayments scheduled this month, we anticipate no market demand at the primary auctions for new budget financing using local currency denominated bonds.