BULGARIA’S LONG-TERM INTEREST RATE AMONG THE LOWEST IN CENTRAL AND EASTERN EUROPE
21.06.2011
The Ministry of Finance reopened yesterday, 20 June 2011, a government securities issue of an original maturity of 10 years and 6 months issued on 19 January 2011. The issue is used as the basis for calculating the long-term interest rate this year being one of the Maastricht criteria for membership in the Euro area. The requested orders total almost BGN 84 million and exceed the size of the orders of the previous auction held for the same issue, which was BGN 70.95 million. The Ministry of Finance has approved GS amounting to BGN 50 million. Thus, the overall volume of this issue of priority for the Ministry exceeds BGN 150 million.
The weighted average annual yield to the approved volume of BGN 50 million is 5.42 per cent. Due to the twice higher volume of placed GS compared to the previous auction of the same issue (BGN 23.9 million), there is a slight increase in the yield by 3 base points. Traditionally, this maturity segment aroused the interest of institutional investors such as pension funds, insurance and life insurance companies. The issue parameters enhance its status of a benchmark bond and stimulate the increase in its liquidity on the secondary market.
In the insecure conditions of European debt markets, the cost of government financing on the domestic market remains stable. The marked yield of the GS issue of priority to MoF on the primary market is in unison with the latest data on the size of the harmonized long-term interest rate published by Eurostat and ECB for May 2011. Bulgaria\'s harmonized long-term interest rate for the latest reporting period is 5.39% and is below that of a number of Central and Eastern European countries. It is 6.06% for Poland, for instance, 7.11% for Hungary, 7.26% for Romania, and 6.36 per cent for Latvia.
Against the background of the strong dynamics of international debt markets, the Ministry of Finance continues to pursue its adequate issue policy for development of the domestic GS market and to boost the benchmark issues as an investment alternative at an optimal yield/risk ratio.