12-month bond yields fall further, close to the key interest rate

2024-06-13 14:32:00, Ekonomi CNA

12-month bond yields fall further, close to the key interest rate

Illustrative photo, taken from Google

Treasury bond yields fell further at this week's auction, falling very close to the key interest rate level.

According to data from the Bank of Albania, the weighted average yield decreased to 3.32%, from 3.41% in the previous auction. The spread between the base rate and the 12-month bond yield has fallen to a historic low.

Out of 7.5 billion lek which was the amount announced for financing by the Ministry of Finance, a total of 8.9 billion lek worth of requests were presented at the auction.

But the rate or accepted part of competitive offers increased compared to previous auctions, reaching 83.31%. However, this did not stop the decline in yields.

Even in this auction, this decrease seems to have been partially influenced by the high portion reserved for the Bank of Albania, which was 3.35 billion ALL or half of the amount announced for financing.

The Bank of Albania does not participate in the auction with competitive offers, but buys the bonds with the weighted average yield of other accepted requests. But, although it does not participate with competitive bids in the auction, the Bank of Albania significantly affects the yield, taking a part of the announced amount of the bonds as a reserve and increasing the difference between the demand and the offer for the remaining amount.

Meanwhile, 6-month bond yields fell below the base interest rate level. The weighted average yield touched the level of 3.24%, from 3.28% that had been in the previous auction. Yields fell despite low demand at the auction.

Source: BSH

Of the 1 billion ALL that had been the amount announced for financing, the total value of the requests was only 726 million ALL.

Recent developments in Albania and the Eurozone have already made it clear that the cycle of interest growth has closed.

On the other hand, this month the European Central Bank took the decision expected by the markets for the first reduction of interest rates in the last five years. It is expected that other central banks in Europe will start to move in the same direction, although concerns about inflation still remain.

Inflation in Albania for May marked a slight increase to 2.2%, but it remains significantly below the objective of the Bank of Albania. At the moment, the Bank of Albania has not given signals for an expected reduction in interest rates, but in the meantime it has moved with easing policies through intervention in the exchange rate, preventing further strengthening of the lek.

The central bank is maintaining a cautious position, stressing that the drop in inflation is mainly due to the drop in import prices and the exchange rate, while internal inflationary pressures remain significant. However, if inflation does not show signs of recovery in the second half of the year, it is expected that the Bank of Albania will follow the course of its European counterparts.

Meanwhile, the further drop in yields and their stationing near the base interest rate prove that the financial market is calm and liquid. The reduction in the price of government debt has a direct impact on the interest rates of loans for the private sector, which are usually built based on the performance of the 12-month bond yield. The drop in yields in general has the effect of lowering the cost of borrowing for businesses and households, creating premises for further credit growth.

For the entire first four months of the year, the value of new loans disbursed by the banking sector reached the value of 117 billion ALL, an increase of 35% compared to the same period last year./ Monitor.al