Interest in military bonds declines
On Tuesday, June 14 close to Hr 5.5bn ($190m) was raised for the state budget through the primary auction. However, only Hr 2.0bn ($73m) was raised through military bonds.
Most of these funds, almost Hr 3.5bn ($117m), were raised through two-month non-military bonds, which cannot be traded on the secondary market.
This paper was offered for the first time two weeks ago. Some demand likely came from foreign investors or from banks and other investors that have internal caps limiting their investments in military bonds.
However, on Wednesday, June 15 there were only two buyers who chose to invest in non-military bills, despite the fact they can’t be traded on the secondary market.
The second-largest amount of borrowed funds came from military bills denominated in euros. It brought the state budget EUR 54.6m (Hr 1.7bn) for a year.
The hryvnia-denominated military bills were not in great demand. The total volume of bids fell by more than half compared with last week to Hr 341m ($11.6m) from Hr 856m ($29m).
However, the number of bids increased to 51 from the 40 received on Tuesday, June 7. Thus, the budget attracted quite a good amount of funds to cover current needs, refinancing part of today’s (June 15) principal and interest repayments of Hryvnia-denominated debt.
But due to expectations of high inflation and with the NBU key policy rate now at 25%, investors are looking for a compromise level of interest rates on military bonds that would be acceptable to the Ministry of Finance.
Nonetheless, investors appear to be ready to buy more bills that cannot be traded on the secondary bond market during martial law, which assists the state budget during this time of war.
RESEARCH TEAM Taras Kotovych Complete report (4 pages, 268KB)
