The government's high demand for funding "dried up" liquidity in the market/ Yields rise again

2024-01-31 07:50:00, Ekonomi CNA

The government's high demand for funding "dried up" liquidity in

The financial market is not able to fully respond to the government's high demand for financing at the beginning of the year.

The amount announced for financing in the auction of 12-month bonds was not fully secured for the second auction in a row.

In Tuesday's auction, the Ministry of Finance had announced an amount of 13.5 billion ALL, while the total amount of requests presented did not reach more than 11.3 billion ALL. Meanwhile, the Ministry of Finance accepted total requests for approximately 11 billion ALL.

The weighted average yield again rose slightly to 3.62%, from 3.6% at last week's auction. The yield of these instruments is already at the highest levels since May of last year. As rarely before, the Ministry of Finance has organized four auctions of 12-month bonds within one month in January of this year.

This intense demand for financing (48.5 billion ALL in 12-month bonds alone, including refinanced amounts), as expected, has been reflected in a partial drying up of market liquidity and an increase in yields.

In total, the planned borrowing for the first quarter of 2024 has the value of 144.5 billion ALL, increasing by 19.4% compared to the same period of 2022 and by almost 80% compared to the last quarter of 2023. Only in the months of January and February, the Ministry of Finance anticipates to realize almost 30% of the annual borrowing volume for 2024.

Meanwhile, the auction of 6-month bonds went more smoothly, through which the Ministry of Finance financed one billion ALL, while the total demand reached a little more than two billion ALL. The weighted average yield reached 3.28%, very close to the level of the base interest rate.

However, this yield represents a strong increase compared to the last auction of these instruments, in October 2023. In that auction, the 6-month notes were issued at an unusual yield of 1.5%, half the base interest rate. but the Bank of Albania assessed the result of this auction as an anomaly caused by a single competitive request.

Another factor that can affect the increase in yields is a strengthening of the market's expectation for further interest rate increases in the coming months. Such a phenomenon was observed especially in the second half of 2022, when the Bank of Albania undertook a cycle of consecutive increases in the base interest rate.

The statements of the Supervisory Council at the end of last year warned of further monetary tightening during 2024, with the aim of reducing inflation towards the 3% target. Such an expectation may push some investors to take holding positions, with the objective of investing the funds with higher returns./ Monitor Magazine