Market ignores primary auction

Market ignores primary auction



15 липня 2015 года
ICU

The MoF canceled yesterday's primary auction of two-year local currency bonds. There were no market bids, possibly because of long maturity and uncertainty of interest rates acceptable to the MoF. Moreover, as primary auctions have not been held for a long term, the NBU's key rate rose to 30%, increasing the negative impact.

Market conditions have changed substantially since the 2-year bonds were last offered in February when a low volume was sold at 16.70%. The KyivPrime 1M interest rates have been minimally volatile at about 28% and declined below 26% just at the beginning of this week. During the last few months, the NBU routinely sold its CDs at a maturity of up to 30 days at interest rates of up to 27%. The rates at the secondary market have risen above those offered at the last primary auction. Bonds maturing this December were quoted yesterday at 20.50-24.50% while the NBU's quotes are at 21.20%. Amidst this failed auction, the NBU quoted bonds with longer maturities up to 10 years at lower interest rates and announced a tender today of 30-day and 89-day CDs at interest rates not higher than 22.00% at limited volumes.

Under these conditions, the MoF is unlikely to accept interest rates above 19.00%, which is below the market and unappealing to investors opposed to buying 6-month bonds from the NBU's portfolio at 20.50%.

To restart primary auctions and attract market demand, the MoF should hold at least one primary auction per month with a wider range of maturities after informing the market of acceptable interest rates. The more bonds and interest rate guidance the MoF provides to the market, the more likely the primary auction will receive bids.

Источник: ICU

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