Domestic Government Bonds for Local Budgets
In order to provide opportunities for temporarily free placement of local budgets through the purchase of government bonds that currently have higher yields compared to bank deposits, the Cabinet of Ministers approved the Procedure for placing temporarily available funds of local budgets through the purchase of government bonds (Resolution of the Cabinet of Ministers of Ukraine No. 544 dated 23.05.2018).
Domestic government bonds are government securities placed exclusively on the domestic stock market and confirm Ukraine's commitment to pay bond holders the nominal value with the coupon payments in accordance with the terms of bonds issue (hereinafter – DGB).
Ukrainian domestic government bonds are classified into the three categories according to their maturity:
- long-term – over five year;
- medium-term – one to five years;
- short-term – less than one year (3,6,9 and 12 months).
The nominal value of the bond is UAH 1000.
The Procedure provides an opportunity for local financial institutions to place temporarily free funds of general and special funds (except for subventions received from other budgets and funds of the reserve fund) by purchasing DGBs with a maturity of up to one year and over one year.
Placement of a temporarily free funds of local budgets by a way of purchasing DGB will allow to increase the efficiency of the use of these funds, as well as place them in reliable financial instruments, payment of interest income and the return of the principal amount are guaranteed by the state.
The Ministry of Finance according to the Resolution of the Cabinet of Ministers of Ukraine "On Issue of Internal State Bonds" No. 80 dated 31.01.2001 carries out placement of DGBs in the form of auction sales through the National Bank of Ukraine, which performs public debt servicing operations related to placement of DGBs, repayment and payment of income from them and also conducts depositary activity on the bonds.
DGBs are distributed through initial placement and additional placement. By way of initial placement, new bonds are distributed, which, according to the terms of issue and the volume of rights granted to their owners, were not yet in circulation.
By the way of additional placement, bonds, which is which by maturity, the amount of interest payments, if any, and the amount of rights granted to their owners, are in accordance with the terms of issue of bonds that are already in circulation are placed.
Discount and interest DGB are proposed for placement.
Discount (short-term) DGB are government securities placed with the value lower than the nominal value. The yield on a short-term government bond is the difference between the nominal value paid during the redemption of the bond and the price of its acquisition.