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10-year bond yields fall to lowest level since January 2022

2024-10-24 19:23:58, Ekonomi CNA

The 10-year bond yield fell again at the October auction. According to information from the Bank of Albania, the accepted uniform yield decreased to 5.93%, from 6.13% that was in the last auction, held in July. The 10-year bond yield has touched its lowest level since early 2022, before the start of the interest rate hike cycle.

Investors' demand appeared high even in the next auction. Of the three billion ALL that was the amount announced for financing by the Ministry of Finance, the total value of the requests presented at the auction reached 5.5 billion ALL. The Ministry of Finance decided to increase the amount of borrowing to ALL 3.45 billion, evaluating, apparently, the yields requested by the investors as satisfactory. If the amount received had not increased, most likely the yield would have been even lower.

Yields now appear to be in a clear downward trend across all government debt instruments. At the beginning of July, the Supervisory Council of the Bank of Albania reduced the base interest rate from 3.25% to 3%. This was the first rate cut in more than four years and ended a two-year cycle in which monetary policy had been tightening.

Meanwhile, inflation has continued to fall during the third quarter of the year. According to INSTAT data, inflation in September decreased to 1.9%, at the lowest level of the last three years.

10-year bond yields fall to lowest level since January 2022

These signals have been quickly transmitted to the primary market of government debt securities and yields now appear to be in a phase of further decline.

The decline in yields of government debt instruments indicates a liquid state of the domestic financial market, high investor demand for these securities and a low risk perception from them.

In addition to the demand from domestic investors, during this year, for the first time, demand for government securities in Lek was also observed from non-resident institutional investors.

Bank of Albania statistics show that at the end of September, the annual growth of the monetary aggregate M2 reached 6.7%, the highest level since October 2021.

The decrease in yields of government debt securities is also reflected in the interest rates of Lek loans, resulting in lower costs for private borrowers.

Low interest rates have favored a rapid growth of lending in Lek in the last two years. At the end of August, the loan portfolio for the economy reached the value of ALL 812 billion, with an increase of 12% compared to the same period of the previous year. The growth is mainly led by lending in the local currency, which has expanded by 18% compared to the previous year./ Monitor.al