12-month bond yields fell, touching the lowest level since January

2024-05-15 08:10:18, Ekonomi CNA

12-month bond yields fell at this week's auction.

According to data from the Bank of Albania, the weighted average yield decreased to 3.54%, from 3.66% in the previous auction. Of the eight billion ALL that was the amount announced for financing by the Ministry of Finance, the total value of the requests reached almost 11.9 billion ALL.

The pro rata or accepted part of competitive requests was 45.05%. However, the low pro rata and to a large extent the drop in yields was determined by the high portion reserved in the auction for the Bank of Albania, which was four billion ALL or half of the amount announced by the Ministry of Finance.

However, 12-month bond yields are at their lowest levels since January. Also, it remains at lower levels compared to the same period a year ago, when it was at the level of 3.75%.

The drop in inflation and the keeping of relatively low interest rates by the Bank of Albania is also reflected in the performance of the market of government debt instruments.

In particular, treasury bonds are yielding close to the base interest rate, while bonds with a shorter maturity have even fallen below the base rate.

A very slight increase in yields was observed during the first quarter, but mainly due to the high concentration of government borrowing in this period. Further, yields appear to have stabilized, even with a slight downward trend for most instruments.

Inflation this year has continued to decline and for April it dropped to 2.1%, the lowest level in three years. The Bank of Albania reacted by keeping the base interest rate unchanged at 3.25%.

12-month bond yields fell, touching the lowest level since January

After the last meeting of the Supervisory Council, Governor Sejko emphasized, however, that this rapid fall in inflation is due to supply factors and mainly to the effect of falling prices of imported goods, but also to the strengthening of the lek in the exchange rate. According to him, this rapid drop in inflation is expected to be temporary.

However, at the moment the low inflation seems to have adjusted the expectations for interest rates downwards.

The decline of government debt securities and especially of 12-month bonds, which are the main benchmark instrument, directly determines the borrowing costs of the private sector. The reduction of loan costs in Lek is likely to keep the credit performance for the economy at high levels.

The data of the first quarter of 2024 showed that the value of new loans disbursed by the banking sector reached the value of ALL 82.8 billion, an increase of almost 30% compared to the first quarter of last year./ Monitor.al