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15-year bond yield falls to 7.45%

2024-05-16 09:13:46, Ekonomi CNA

The yield of 15-year bonds fell significantly at this week's auction.

According to the information from the Bank of Albania, the uniform yield accepted in the reopening of the auction decreased to 7.45%, from 7.94% that had been in the initial auction of the same issue, which took place in February.

Out of the 1.5 billion ALL that was the amount announced by the Ministry of Finance, the submitted amount of requests in the auction reached almost 2.6 billion ALL. The Ministry of Finance decided to increase the issue amount by the maximum allowed of 15%, bringing it to ALL 1.725 billion.

If the amount of bids received had not increased, the yield would have been even lower. The regulation of bond auctions stipulates that the yield for all accepted requests shall be uniform with the yield of the highest accepted request.

The long-term bonds of the Albanian government, however, continue to offer quite satisfactory returns in relation to the investment risk. The figures of the Financial Supervision Authority showed that for the first quarter of 2024, the value of bond purchases in the primary market by individuals decreased to less than 2.5 billion ALL, down 31.1% compared to the same period last year.

15-year bond yield falls to 7.45%

The 15-year bond auction, among others, confirms a downward shift in interest rate expectations. In the first months of this year, inflation has fallen rapidly and in April it touched the level of 2.1%, the lowest in almost three years.

At this month's meeting, the Bank of Albania again kept the base rate unchanged at 3.25%, and in the current conditions, there is hardly any question of further rate increases. However, after the last meeting of the Supervisory Council, Governor Sejko gave some signals of caution, stating that the rapid fall in inflation is a consequence of external supply and exchange rate factors.

The Bank of Albania expects this decline to be short-term, implying that inflation may return to growth in the coming months. The concerns are mainly related to the still high inflationary pressures generated by the domestic economy, especially related to the increase in wages and the high need for labor in the service sectors.

However, it already seems that the expectations of the financial market in the medium term seem to be moving towards the reduction of interest rates, especially following the expected scenarios in the Eurozone. Analysts expect that, in the absence of unexpected inflationary shocks, the European Central Bank will start lowering interest rates as early as next month. A similar move is expected from the Bank of England./ Monitor.al