Yields on Ukrainian govt domestic loan bonds remain attractive – National Bank Dpty Governor

The National Bank of Ukraine (NBU) sees no risks in the decline in yields on government domestic loan bonds, which began earlier this year, and considers the decrease to be market-driven.

"The Finance Ministry responded to the situation: if demand is high and inflation is declining, there is room to reduce yields. This did not pose a problem for our transmission mechanism," NBU Deputy Governor Volodymyr Lepushynsky said in an interview with Interfax-Ukraine.

As reported, since the end of January the Ministry of Finance has significantly limited the supply of government domestic loan bonds, which helped it reduce placement rates that had remained unchanged since April 2025: for one-year bonds from 16.35% to 15.15%, for two-year bonds from 17.5% to 15.87%, and for three-year bonds from 17.8% to 16.15% per annum, while the NBU lowered its key policy rate only at the end of January from 15.5% to 15% and kept it unchanged in March.

Lepushynsky said that there had been an artificial gap between government domestic loan bond yields and deposit rates, because government bonds had not been widely known as an investment instrument. However, the public has now embraced the instrument, as it is tax-free and has no entry threshold: purchases can be made starting from a single bond, with almost zero costs.

"In February, we saw record household investment in hryvnia-denominated government domestic loan bonds – UAH 10 billion. Since the beginning of the year, growth has reached 24%, and since the start of martial law it has increased six and a half times. The household portfolio of hryvnia government domestic loan bonds has exceeded UAH 82 billion, and together with foreign currency-denominated bonds, the equivalent of UAH 130 billion," the deputy governor said.

He also recalled that at the beginning of the year inflation was moving close to the NBU’s forecast, which created expectations of its further decline and, accordingly, a reduction in the policy rate. As a result, the decline in yields on hryvnia government domestic loan bonds began even before the NBU cut its key rate.

"The policy rate directly affects the cost of short-term funding, whereas longer-term rates are shaped by expectations. Inflation expectations are a very important component: how much trust there is in the central bank’s ability to bring inflation under control after a spike," Lepushynsky explained.

He also noted that demand for government domestic loan bonds remained strong in the first quarter despite lower rates: rollover of hryvnia bonds in Q1 was high, at around 160%.

According to him, amid increased demand for foreign currency in March following the outbreak of hostilities in the Middle East, the NBU did not ask the Ministry of Finance to raise government domestic loan bond rates or increase their supply.

"We are currently in a period of volatility. We will see. In principle, government domestic loan bond yields remain attractive even despite the deterioration in household inflation expectations," the deputy governor said when asked about the impact of current primary market government domestic loan bond rates on the monetary policy transmission mechanism.

At the most recent primary auctions on April 14, total demand for hryvnia bonds fell to a minimum of just UAH 0.86 billion, even though the Finance Ministry increased supply from UAH 4 billion to UAH 9 billion.