12-month bond yields fall further to 2.54%

2025-10-15 22:50:46, Ekonomi CNA

12-month Treasury bond yields suffered a further decline in this week's auction.

According to information from the Bank of Albania, the weighted average yield decreased to 2.54%, from 2.57% in the previous auction, which was held in September.

This auction was also characterized by high investor demand. From the 7.8 billion lek that had been the amount announced for financing, total demand reached about 14.5 billion lek.

The Ministry of Finance decided to increase the amount of the issue to almost 9 billion lek. Despite this, the pro rata or accepted share of competitive offers was still very low, at 5.84%.

Low levels of 12-month bond yields reduce the cost of government debt, especially considering that they are the most widely used domestic borrowing instrument.

But, 12-month bond yields are also the main benchmark instrument for lending in Lek, a decline in which is also reflected in lower rates for variable interest loans in the local currency.

The figures show that low interest rates continue to support the growth of lending to the economy. For the first 8 months of 2025, new credit granted by the banking sector reached 272.6 billion lek new loans, an increase of 8% compared to the same period last year.

Regarding the historical performance of bond yields, it appears that high liquidity in the market has driven them to their lowest level since June 2022.

Moreover, the spread (the margin between the yields of 12-month bonds and the base interest rate) remains very low, at only 0.04 percentage points, while at some points during this year this margin has even been negative, which means that the yields of these instruments have fallen below the base rate. Bonds with shorter maturities, in the rare issues that have been carried out during this year, have also regularly resulted below the base interest rate.

While long-term instrument yields have corrected downwards since the third quarter, this has not happened with bond yields, which continue to decline. High demand from institutional investors, mainly banks, in this market segment continues to exert downward pressure on yields.

The decrease in the value of government borrowing in the domestic market has also had an impact in this regard. In the third quarter, the value of government borrowing was forecast to be 10% lower compared to the third quarter of last year.

The same trend is expected in the last quarter of this year. According to the Ministry of Finance's borrowing calendar, the amount programmed to be financed in the domestic market (including refinancing of matured instruments) will be 64.9 billion lek, down 3.4% compared to the third quarter and down 4.6% compared to the same period a year ago./ Monitor.al