The cost of long-term government debt is rising again, 10-year bonds are becoming more expensive

2023-10-30 07:25:00, Ekonomi CNA

The cost of long-term government debt is rising again, 10-year bonds are

The 10-year bond yield rose at the last auction. According to data from the central bank, the uniform yield accepted at the auction reached 6.44%.

The auction was a relaunch of the one on July 12, when the 10-year bonds were sold at a uniform yield and coupon of 6%. Even the auction of 10-year bonds confirmed an increasing trend in the yields of the long-term debt instruments of the Albanian government. One of the reasons is the decrease in the participation of investors in these auctions

In last week's auction, the Ministry of Finance and Economy (MFE) put up for sale an amount of three billion ALL 10-year bonds, but the total demand submitted by investors at the auction was limited to 2.8 billion ALL.

Of these, MFE received only 2.4 billion ALL. If the amount received would be greater, then the uniform yield of the bonds would also be higher.

One of the reasons for the decrease in demand and increase in yields in the primary bond market may be the lower participation of banks in these auctions in the latter part of the year.

This is partly also a seasonal trend, since banks have a more aggressive approach in the first part of the year, with the aim of realizing budgets and investment objectives.

However, an upward correction in yields was expected, given that by the summer they had fallen significantly, perhaps beyond expectations.

Only short-term instruments are exempt from yield correction at the moment. Being also a liquidity management instrument for banks, the demand for treasury bonds is generally higher and this has caused the yields to remain low, close to the base rate, and even, in special cases, below it, such as happened with the auction of 6-month bonds.

To a lesser extent, the demand in bond auctions, especially the 12-month ones, is also supported by a greater demand from individuals. Although the drop in yields is estimated to have somewhat dampened interest compared to last year, individual investors still make up a significant segment in Treasury bond auctions.

According to the borrowing calendar of the Ministry of Finance and Economy, the amount programmed to be financed in the domestic market, (including the refinancing of matured instruments) will have the value of approximately 80 billion lek, decreasing by 3.6% compared to with the third quarter and down by 4.2% compared to the same period a year ago.

The decrease will be particularly pronounced for the month of December, when the Ministry of Finance and Economy has planned total borrowing in the amount of 16.5 billion lek, 42% less compared to December last year.

During this year, the government has used the most favorable financing conditions offered by the insider to secure most of the planned annual borrowing.

In fact, in the first half of the year borrowing was even higher than that predicted in the calendar, thanks to the high market demand for government debt instruments and falling yields./ Monitor Magazine

The cost of long-term government debt is rising again, 10-year bonds are