NBU considers yield on govt bonds acceptable

Current yields on domestic government bonds – 15-16% per annum depending on maturity – exceed both current inflation and inflation expectations, as well as the projected inflation of 9.4% by the end of this year, meaning the instrument remains attractive, said Volodymyr Lepushynsky, Deputy Governor of the National Bank of Ukraine.

"We’re currently seeing absolutely adequate yields. The Ministry of Finance’s last loan was 15.2% to 16.2%, taking into account March inflation of 7.9% and the year-end forecast of 9.4%. This is an absolutely acceptable figure for investors: individuals, legal entities, and, of course, banks. We see that the debt market has potential," he said at a briefing on Thursday.

Lepushynsky emphasized that debt policy is the responsibility of the Ministry of Finance, and the recent decline in demand and auction volumes does not yet cause concern for the NBU.

According to a National Bank representative, a positive rollover of over 130% has been observed since the beginning of the year: the Ministry of Finance has attracted UAH 182 billion, with repayments of just over UAH 140 billion, while the current year’s budget law stipulates a rollover of 100%.

"Again, the Ministry of Finance itself manages the attraction of funds, based primarily on fiscal needs," Lepushynsky added.

He noted that, if more intensive funding is needed, the Ministry of Finance could issue benchmark bonds, which banks could use to partially build up their required reserves, and the National Bank is prepared to engage in dialogue within a formalized forum under the Financial Stability Council.

"I would like to point out that, despite the fact that the inflation forecast has been raised, we assess this inflationary surge as temporary. That is, the baseline scenario is that inflation will return to a steady downward trajectory as early as next year," the deputy head of the NBU also said.

According to him, the dynamics of investments in government bonds vary from month to month, but public interest in this instrument is growing as the market develops, access to bonds increases, and this market segment becomes increasingly widespread.

"This product is becoming increasingly widespread, and the situation where rates on government bonds were significantly higher than deposit rates should gradually level out. This process is already underway, so rates are more than attractive and cover not only expected inflation but also allow for a certain return in real terms," ​​Lepushynsky concluded.