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. The nominal value of the bond is UAH 1000. It may also be determined in foreign currency. Ukrainian domestic government bonds are classified into the three categories according to their maturity:
· long-term (more than five years);
· medium-term (from one to five years);
· short-term (up to one year).
The Ministry of Finance, in accordance with the Resolution of the Cabinet of Ministers of Ukraine No. 80 dated 31 January, 2001 "On Issue of Domestic Government Bonds", holds placement of domestic government bonds in the form of auctions through the National Bank of Ukraine (NBU). NBU performs public debt service operations related with the placement of domestic government bonds: their redemption and debt-service payments, as well as depositary activities.
According to its mandate, the Ministry of Finance of Ukraine performs the following activities:
- develops and publishes indicative calendars for the placement of domestic government bonds, defines the time and amount of bonds to be placed (approved calendar, as well as adjustments to it are periodically published on the official website of the Ministry of Finance);
- determines the forms and ways of placement of domestic government bonds, sets the maturity of domestic government bonds as well as redemption dates and coupon payment dates (for coupon bonds);
- establishes the marginal level of yield of domestic government bonds, according to which bidders` applications are satisfied;
- publishes information on the results of placement of domestic government bonds;
- finalizes issues of government bonds with global certificates;
- ensures timely domestic government bonds` redemptions and interest payments.
The placement of domestic government bonds is based on the current financing needs of the State Budget of Ukraine.
The placement of domestic bonds is carried out at auctions and is conducted by the National Bank of Ukraine by the initiative of the Ministry of Finance of Ukraine. Primary
dealers and the National Bank of Ukraine are the participants in the placement of domestic government bonds. Primary dealers meet certain conditions and assume certain obligations. Under cooperation agreement, primary dealers cooperate with the Ministry of Finance, providing bilateral quotations of government bonds and the purchase of domestic government bonds at their initial placement, while the Ministry of Finance provides dealers with the exclusive right to purchase government bonds at the moment of its issue. Investors address primary dealers in order to purchase domestic government bonds on their behalf.
The placement of bonds has the following forms:
- auction sale of bonds;
- sale of fixed-income bonds.
Domestic government bonds are distributed through primary placement and reopening. New bonds are distributed through primary placement, which, under the terms of issue and the volume of rights granted to their owners, have not yet been in circulation. Domestic government bonds that in accordance with the terms of their issue correspond with the bonds in circulation by maturity, the size of coupon payments, if any, and the volume of rights granted to their owners, are distributed through reopening.
The redemption of the domestic government bonds and the payment of the coupon yields are executed on the terms provided during their initial placement. If necessary, the owners of government bonds can sell their bonds on the secondary market.