Ministry of Finance of the Republic of Bulgaria
THE MEDIUM-TERM YIELD ON BULGARIAN GOVERNMENT DEBT HAS SET AT SUSTAINABLY LOW LEVELS
Today, 7 November, the Ministry of Finance conducted the last planned for this year reopening of the medium-term BGN-denominated benchmark bond with original maturity of 3,5 years, its volume being BGN 50 million. There is a marked reduction of the yield down to 3,14%, which has been the lowest rate so far. This happens despite the increased risk expectations of investors on the European sovereign debt markets related to their negative assumptions as to the exit from the debt crisis in the Euro area and the significant increase of the premium on the structured products for protection against credit risk of a number of issuers.
The issue was launched in December 2010, at a peak yield rate of 3,69%, and after today's auction the total nominal value of the issue reached BGN 306,5. Thus high liquidity on the secondary market has been ensured and the benchmark status of the bond has been affirmed.
The average weighted yield on approved bids during the action of 3,14% is below the current yield on the EUR-denominated Eurobonds with similar residual maturity of such countries as Lithuania (3,66%), Turkey (4,18%), Croatia (4,72%), Hungary (6,15%) and Romania (5,36%).
The reopening of the 3,5-year GS issue, together with the decision of the Ministry of Finance to also reopen the seven-year issue with residual maturity of 5,5 years, has contributed to meeting the higher demand for investment alternatives in the medium-term segment of the debt curve. The excellent results from the auction are an evidence of the positive attitude of the local investment community towards the consistent fiscal policy pursued by the government. The sustainably high demand on the GS primary market and the yield reduction, respectively, is preconditioned mostly by the active involvement of banks and leading institutional investors.
Positive are the results of the analysis of the entire benchmark yield curve as regards Bulgarian government bonds, which has been shifting to lower yield levels in all maturity segments since August 2011. The sustainability of the Bulgarian debt market to imported external shocks is also evident from the renewed trend of lowering spread as compared to German bunds. The absence of high volatility of the sovereign credit spread is largely due to the active and market-oriented policy on government debt management, as well as to the stability of the entire financial sector.