20-year bonds issued for the first time, high demand from investors

2025-01-29 07:40:00, Ekonomi CNA

The Ministry of Finance held its first auction of 20-year bonds on Tuesday. The auction attracted considerable investor interest.

Of the 1.5 billion lek that was the announced amount of the issue, total requests in the amount of 4.26 billion lek were submitted at the auction. Thanks to the high demand and favorable price, the Ministry of Finance decided to increase the amount of the issue by 15%, for a total value of 1.72 billion lek.

The received uniform yield and bond coupon resulted in a level of 6.78%, below the reference coupon of 7% presented before the auction by the Ministry of Finance.

In March, the Ministry of Finance has also planned to reopen the auction of 20-year bonds, for a value of 1 billion lek.

The 20-year bonds are the longest-term debt instruments ever issued by the Albanian government. The extension of the maximum debt maturity is in principle a signal of strengthening the borrower's credibility. In recent years, public debt indicators have improved, thanks to the good performance of the economy after the pandemic, the strengthening of the lek in the foreign exchange rate and a more conservative fiscal policy, with lower budget deficits. After reaching a record level of more than 74% of GDP in 2021, public debt has been declining rapidly in the following years and at the end of 2023 it dropped to 57.5% of GDP. According to preliminary estimates by the Ministry of Finance at the end of 9 months of 2024, public debt was 55.45% of GDP.

The debt reduction led the main credit rating agencies, S&P Global Ratings and Moody's, to upgrade the country's sovereign debt rating this year.

In the last decade, the Ministry of Finance has pursued a strategy of gradually extending the maturity of public debt, with the main aim of reducing refinancing risk, but also benefiting from the cycle of low interest rates. At the end of September 2024, the average maturity of domestic debt instruments increased to 928 days, from around 630 days a decade earlier.

On the other hand, the fairly high demand at the auction indicates that investors are interested in longer-term investment alternatives and in increasing the return on their portfolios.

These instruments are a good alternative, especially for institutional investors. Especially for companies that manage funds with a long-term horizon, such as private pension funds, 20-year bonds create opportunities to enrich the spectrum of securities in portfolios and increase returns for members.

For the first time last year, the Albanian government debt instruments market in lek also attracted institutional investors from abroad.

On the other hand, the addition of debt instruments with longer-term maturities creates more premises to develop the secondary securities market, to make these securities more liquid./ Monitor Magazine