Auction on placement of government bonds helped to strengthen the hryvnia
On the background caused by the quarantine of economic decline the government is trying to increase financial resources through additional loans. Last week, the national Bank lowered the discount rate from 10% to 8% per annum and announced that from may will start inviting tenders for the provision of long-term refinancing without limits on banks use of these funds, including the purchase of government bonds.
Appreciating the last year of a mechanism to attract capital by issuing government bonds, the government for 2020 has planned to attract in the budget of 242 billion in the domestic market and UAH 119 billion, equivalent to the external through the placement of government bonds.
After a month break, yesterday the Ministry of Finance held a new auction of government bonds, which drew UAH 5.4 billion and 164 million $. Hryvnia-denominated bonds placed under 11.3 per cent, whereas at the last auction on 3 March, the yield on 6-month securities was 9.9% and 10%, respectively.
Overall demand for the hryvnia paper is made up 6.59 billion, according to some rates reached 15%, which is approaching a level of interest rates in the secondary market. However, the Finance Ministry has rejected three bids with high interest rates.
5 requests for 6-month currency securities managed to attract 53.3 million $ by 3.3% in comparison with the previous auction on March 24, where 3-month foreign bonds were placed under 3%.
the Demand for 14 applications for a 9-month paper was 618,7 million $, but not to raise the rate to 5% per annum, the Ministry of Finance only granted 11 applications for $ 113.7 million $, while maintaining a rate of 3.5%.
last month, the Finance Ministry has cancelled several auctions for the sale of government bonds in national currency, as the rate rose sharply to 10% annual and above.
Yesterday's auction helped to strengthen the hryvnia, as the supply of currency on the interbank market in the past two weeks exceeds demand. The dollar from the morning to 27.06/27,10 UAH/$ at the end of trading fell to 27,005/27,035 UAH/$. The national Bank bought excess currency volume of $ 20 million at a price no higher 27,05 UAH/$.
During the quarantine, exporters continue to work, so revenues remain at a high level, while demand from importers low. This improves the balance of trade and supports the hryvnia. However, this suffers from the budget, whose income is largely generated by imported goods and taxes on trade.
Active fundraising via hryvnia government bonds on the background of increasing the budget deficit again can dramatically strengthen the hryvnia, which will cause damage to exporters, who still continue to work.
