12-month bond yields fall below the base rate, touching the lowest level in three and a half years

2025-11-12 22:53:55, Ekonomi CNA

12-month bond yields fall below the base rate, touching the lowest level in

12-month bond yields suffered another slight decline in the November auction, falling back below the base interest rate level.

According to information from the Bank of Albania, the weighted average yield of these instruments decreased to 2.49%, from 2.5% in the previous auction.

The yield on 12-month bonds continues to fall on an annual basis. In the auction a year ago, the bonds that were refinanced in today's auction were issued with an average yield of 2.84%.

At the same time, the average yield level is the lowest since May 2022.

This is the third time that 12-month bond yields have fallen below the benchmark interest rate. This previously happened in December 2024 and in June this year.

The decline in yields seems to be mainly related to market liquidity and the high demand that the market is continuously showing in the auctions of short-term instruments. Of the 7.3 billion lek that was the amount announced for financing by the Ministry of Finance, the total value of the requests in the auction reached almost 10 billion lek. Out of 14 nine competitive requests in the auction, only 7 such were accepted.

Low yields are also linked to the gradual reduction in the government's total borrowing in the domestic market. According to the Ministry of Finance's borrowing calendar, the amount programmed to be financed in the domestic market in the last quarter of the year (including refinancing of maturing 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.

The 2026 draft budget also foresees a relatively low level of borrowing, while the Bank of Albania, in its opinion on this draft budget, states that focusing borrowing on the domestic market helps reduce the state budget's exposure to exchange rate risk, while also being supported by good financial conditions in the domestic market.

In the second half of this year, treasury bill yields are showing a different trend than bond yields. While bond yields are correcting upwards, after touching historical minimum levels in the second quarter, treasury bill yields have continued to decline, once again reaching the level of the base interest rate.

Low yields on 12-month bonds are also reflected in interest rates on loans to the private sector. These instruments are used as a benchmark to build the price of loans with variable interest rates in Lek. The decrease in bond yields also makes loans cheaper, playing an important role in keeping demand for loans from the private sector high./ Monitor.al