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Weekly Insight -- Bond market reacts to NBU key rate cut

At the primary auction, the MoF lowered interest rates for UAH bonds by 20‒30bp following NBU’s surprise cut in key rates a week before. YTMs in the secondary market also declined.

The MoF borrowed UAH16.3bn (US$419m) last week, including UAH10.5bn (US$269m) in local currency. Demand for UAH bonds doubled compared with the week before, accompanied by a decline in interest rates in most bids. Expectations of a decline in bond rates were high last week after the NBU cut its key rate and the rate on ON CDs by 50bp to 14.5% and the rate on three-month CDs by 150bp to 17.5%. Demand significantly exceeded the cap for 12-month and two-year securities, so the MoF only accepted bids with the lowest rates and decreased cut-off and weighted-average rates by 30bp and 25bp, respectively. The rates for three-year notes were down by 20bp.