Bonds, government debts get harder and at higher cost

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The government is having difficulty getting into debt and is taking out loans at higher interest rates to make up for lost time. The results of the recent auctions held by the Bank of Albania on behalf of the Ministry of Finance reveal that the interest of investors in purchasing assets has declined dramatically in recent months.

For example, in the most recent auction for 3-year bonds, the demand was for 3.5 billion ALL, but only 2.7 billion were offered; in the most recent auction for 2-year Eurobonds, the demand was for 12 billion ALL, but only 9.5 billion were supplied; and in the most recent auction for 10-year securities, the demand was for 4.5 billion ALL, but less than ALL 1.8 billion were offered.

This low interest rate on securities is linked to investors’ desire for a larger return on investment, implying that they anticipate higher interest rates in the future.

For the government, this has resulted in new, more costly borrowing, with interest rates on 12-month bonds rising from 1.57 percent at the start of the year to 2.22 percent at the most recent auction. This rise in interest rates is seen in all other instruments with varying maturities.

In May, the reopening of the auction for 15-year bonds worth ALL 2 billion will be held for the first time in over a decade. As a novel product and the longest-term debt ever issued by the government, it produces even higher interest rates, averaging 5.84%, which might be quite appealing in certain circumstances.