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Cheapest Loans The 12-month bond yield equals the prime interest rate

2024-10-30 08:03:00, Ekonomi CNA

The yield on the 12-month bond suffered another slight decline at this week's auction, equaling the level of the base interest rate for the first time.

According to information from the Bank of Albania, the weighted average yield reached the level of 3%, from 3.02% that had been in the previous auction, in the middle of this month. The yield of these instruments has touched the lowest level since July 2022, but meanwhile the most significant is the drop in the level of the base interest rate, which had never happened before.

The market continues to be characterized by a high demand from investors. Of the eight billion ALL that was the amount announced for financing, the total value of the requests in the auction reached more than 11.1 billion ALL. As has happened in other auctions during the last two months, the Ministry of Finance has increased the amount of borrowing, bringing it to 9.2 billion ALL.

This year, for the first time, foreign investors, mainly investment funds, entered the Albanian government's lek bond market. Their participation has been mainly focused on bond auctions, but however the increase in demand as a whole has created more excess liquidity oriented towards 12-month bonds as well.

The offer of securities in the primary market meanwhile has gradually decreased during this year, since the government concentrated borrowing mainly in the first quarter of the year. According to the borrowing calendar of the Ministry of Finance, the amount programmed to be financed in the domestic market (including the refinancing of matured instruments) will amount to 68 billion ALL, down 8.8% compared to the third quarter. and decreased by 15% compared to the same period of the previous year.

On the other hand, inflation has dropped to the lowest levels of the last three years, while economic growth is at satisfactory levels, supported especially by the construction and service sectors.

Expectations for interest rates have already moved significantly downward, seeing also the recent movements of major central banks, such as the European Central Bank and the Federal Reserve. In July, the Bank of Albania also applied the first reduction in the basic interest rate since 2020.

The 12-month bonds are also the main reference instrument (benchmark) in the Albanian financial market, which are used to build interest on loans in the local currency. A drop in yields also brings a reduction in loan interests for the private sector, favoring the further expansion of lending in the local currency. For the 8th month of 2024, the new loan granted to the Albanian economy has reached the value of 252.4 billion ALL, an increase of 32% compared to the same period last year./ Monitor magazine